Suppose That a Stock Sells at a Price of $60

question 71

Multiple Choice

Suppose that a stock sells at a price of $60 on the expiration date. Compute the payoff to the seller of a put option if the option strike price is $80.

• A) -$20
• B) -$10
• C) 0
• D) $40

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Definitions:

Inferior Good

A type of good for which demand decreases as the income of consumers increases, opposite to what is observed with normal goods.

Diminishing Marginal Utility

The principle that as a person consumes more of a good, the satisfaction (utility) gained from consuming an additional unit decreases.

Total Satisfaction

The total amount of pleasure or utility that a consumer receives from consuming a certain quantity of goods or services.

Utility-Maximizing

The process of adjusting consumption of goods and services to achieve the highest possible level of satisfaction or utility.