The Profit or Loss for the Holder of a $5

question 139

Multiple Choice

The profit or loss for the holder of a $5 call option (purchased for $0.50) given the share price at expiry is $5.20, will be:

• A)zero, because they will not exercise
• B)a loss of $0.50, because they will not exercise
• C)a loss of $0.30, because they will exercise
• D)a profit of $0.20, because they will exercise.
• E)None of these are correct.

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Definitions:

Activity Bases

Criteria or units of measure used to allocate costs in activity-based costing, reflecting the extent to which cost drivers are used or consumed.

Total Variable Cost

The sum of all costs that vary directly with the level of production or output.

Fixed Cost Per Unit

The total fixed costs of production divided by the number of units produced, decreasing as production volume increases.

Relevant Range

The level of activity within which the assumptions about fixed and variable costs in cost-volume-profit analysis remain valid.