A Call Option on £1,000 with a Strike Price of €1,250

question 26

Multiple Choice

A call option on £1,000 with a strike price of €1,250 is equivalent to

• A)a put option on €1,250 with an exercise price of €1,000.
• B)a portfolio of options: a put on €1,250 with a strike price in dollars plus a call on £1,000 with a strike price in dollars.
• C)a put option on £1,000 with an exercise price of €1,250.
• D)both a and b

---

Definitions:

Accounting Profits

The financial gain calculated by subtracting total explicit costs from total revenues, using generally accepted accounting principles.

Economic Profits

Profits calculated by subtracting both explicit and implicit costs from total revenues; also known as supernormal profits.

Implicit Costs

Costs that represent the opportunity costs of using resources owned by the firm for its own production rather than selling those resources.

Economic Profit

The difference between total revenue and the total cost of inputs (including opportunity costs), reflecting the additional gain from business operations beyond breaking even.