The Purchase Price of an Option Contract Is Typically Recorded

question 16

Multiple Choice

The purchase price of an option contract is typically recorded as

• A)an expense.
• B)an asset.
• C)an amortized cost.
• D)a component of shareholders equity.

---

Definitions:

Equity Multiplier

A financial leverage ratio that measures the portion of a company's assets that are financed by stockholder's equity.

Degree Of Total Leverage

A measure that quantifies the sensitivity of a company's earnings before interest and taxes to a change in its sales.

Financial Leverage

The use of borrowed capital or debt to increase the potential return of an investment.

Operating Leverage

Operating leverage is a measure of how revenue growth translates into growth in operating income, indicating the extent to which a company can increase its profits by increasing sales.