Suppose That a Stock Sells at a Price of $40

question 26

Multiple Choice

Suppose that a stock sells at a price of $40 on the expiration date. Compute the payoff to the seller of a put option if the option strike price is $50.

• A) -$20
• B) -$10
• C) 0
• D) $40

---

Definitions:

Marginal Cost

The rise in expense associated with the production of an extra unit of a product or service.

Negative Externalities

The cost that affects a party who did not choose to incur that cost, often associated with production or consumption of goods and services, such as pollution.

Underallocated

Refers to a situation where resources are not enough or not effectively distributed for the production of goods and services, leading to inefficiencies.

Cost-Benefit Analysis

A systematic approach to estimating the strengths and weaknesses of alternatives used to determine options that provide the best approach to achieve benefits while preserving savings.