You Can Realize the Same Value as That Derived from Stock

question 19

Multiple Choice

You can realize the same value as that derived from stock ownership if you:

• A)sell a put option and invest at the risk-free rate of return.
• B)buy a call option and write a put option on a stock and also borrow funds at the risk-free rate.
• C)sell a put,buy a call,and buy a zero-coupon bond.
• D)lend out funds at the risk-free rate of return and sell a put option on the stock.
• E)borrow funds at the risk-free rate of return and invest the proceeds in equivalent amounts of put and call options.

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Definitions:

Predetermined Overhead Rate

A rate calculated before a period begins, used to apply manufacturing overhead costs to products based on a relevant activity, such as machine hours or labor hours.

Underapplied

Describes a situation where the allocated overhead costs in accounting are less than the actual overhead costs incurred.

Overapplied

A scenario in which the overhead cost assigned to manufacturing exceeds the overhead that was actually incurred.

Direct Labor-Hours

A measure of the labor directly involved in manufacturing a product, represented in hours.