The Acid-Test Ratio Differs from the Current Ratio in That

question 134

Multiple Choice

The acid-test ratio differs from the current ratio in that:

• A) Liabilities are divided by current assets.
• B) Prepaid expenses and inventory are excluded from the calculation of the acid-test ratio.
• C) The acid-test ratio measures profitability and the current ratio does not.
• D) The acid-test ratio excludes short-term investments from the calculation.
• E) The acid-test ratio is a measure of liquidity but the current ratio is not.

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Definitions:

Call Option

An agreement that allows the purchaser the option, without being required, to buy a specific asset like a stock, bond, or commodity, at an agreed-upon price within a set timeframe.

Exercise Price

The specified price at which the option holder can buy (call option) or sell (put option) the underlying asset.

Call Option Contracts

Financial agreements giving the buyer the right but not the obligation to purchase an asset at a specified price within a certain period.

Underlying Stock

The specific stock that represents the equity interest in which options, futures, or other derivatives contracts are based on.