Which One of the Following Will Provide You with the Same

question 53

Multiple Choice

Which one of the following will provide you with the same value that you would have if you just purchased BAT stock?

• A)sell a put option on BAT stock and invest at the risk-free rate of return
• B)buy both a call option and a put option on BAT stock and also lend out funds at the risk-free rate
• C)sell a put and buy a call on BAT stock as well as invest at the risk-free rate of return
• D)lend out funds at the risk-free rate of return and sell a put option on BAT stock
• E)borrow funds at the risk-free rate of return and invest the proceeds in equivalent amounts of put and call options on BAT stock

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Definitions:

Fixed Component

A portion of the total costs that remains unchanged regardless of the level of production or business activity.

Inspection Cost

The expenses associated with the activity of ensuring that a product or service meets specified standards of quality.

Least-squares Regression

A statistical method used to determine a line of best fit by minimizing the sum of the squares of the differences between observed and predicted values.

Mixed Cost

Costs that have both fixed and variable components and change in total with the level of activity, but not proportionately.