You Have $100 to Invest

question 9

Multiple Choice

You have $100 to invest. You can invest it in one of two alternatives. The first is to invest it in a stock that is trading for $100. The second is to buy three-month 100-strike calls on the stock that are currently trading at $4 each. You expect the stock price to appreciate with a maximum price after three months of $110. What is the maximum return on investment you can generate using stock and options?

• A) 10%
• B) 50%
• C) 150%
• D) 250%

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Definitions:

Activity Cost Pools

Pools of overhead costs assigned to products and services according to the activities that drive costs.

Machine-Hours

A measure of production output or activity based on the number of hours machines are in operation.

Batches

Groups of items or products processed or produced together as a single lot within a manufacturing or production process.

Activity Rates

Charges or costs associated with specific business activities, often used in activity-based costing to allocate overhead.