A Put on United Pipeline Has 1 Year to Maturity

question 57

Multiple Choice

A put on United Pipeline has 1 year to maturity and a strike price of $45.If an investor purchases that option for $3.25 then in order for the investor to break even,United Pipeline's stock price on the expiration date must equal

• A) $45
• B) $48.25
• C) $41.75
• D) none of the above

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Definitions:

Substitution Effect

The change in consumption patterns due to a change in the relative prices of goods or services, leading consumers to replace more expensive items with cheaper alternatives.

Profit-Maximizing Firm

A company that operates with the primary goal of maximizing its profits by adjusting output and pricing.

Marginal Revenue Product

The increased earnings resulting from the utilization of one more unit of either labor or capital.

Wage

The price paid for the use or services of labor per unit of time.