Ryan TGates Buys a Call Option on Hoste Enterprise for $3

question 24

Multiple Choice

Ryan T.Gates buys a call option on Hoste Enterprise for $3.The call option has a strike price of $35 and 6 months to expiration.If the price of Hoste Enterprise is $33 in 6 months how much is the call option worth at expiration.

• A) $3
• B) $2
• C) $-2
• D) $0

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Definitions:

Profit-Maximizing

Strategies or actions taken by firms to increase their surplus by adjusting output or pricing based on marginal cost and marginal revenue.

Purely Competitive

A market structure characterized by a large number of sellers producing identical products where each seller is a price taker due to the high level of competition.

Wage Rate

The standard amount of compensation paid to an employee per unit of time for their labor or services.

Marginal Revenue Product

The additional revenue generated by employing one more unit of a factor, such as labor, keeping other factors constant.