An Investor Who Exercises a Call Option on an Index

question 65

Multiple Choice

An investor who exercises a call option on an index must

• A) accept the cash difference between the index and the exercise price
• B) purchase all of the stocks in the index in their appropriate proportions from the writer
• C) immediately buy a put option to offset the call option
• D) immediately write another call option to offset
• E) none of the above

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Definitions:

Average Fixed Cost

The total fixed costs of production divided by the quantity of output produced, decreasing as quantity increases.

Range of Output

The difference between the maximum and minimum levels of production output possible for a given firm or industry.

Cakes

Baked goods made from ingredients such as flour, sugar, eggs, and butter, often prepared and decorated for special occasions.

Average Total Cost

The total cost of production divided by the total quantity of output produced.