The Price of ABC Stock Is Currently $42 Per Share

question 13

Multiple Choice

The price of ABC stock is currently $42 per share, but in six months you expect it to rise to $50. ABC does not pay a dividend. You buy a six-month call on ABC, with a strike price of
$45) The option cost $200. What holding period return do you expect on this call? Ignore transaction costs and taxes.

• A) 150%
• B) 200%
• C) 250%
• D) 300%

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Definitions:

Economic Profit

The difference between a firm's total revenue and its total costs, including both explicit and implicit costs.

Monopolistic Competition

A market structure characterized by many firms selling similar but not identical products, with each having some control over its own prices.

Price Makers

Entities in a market that have the power to set prices for goods or services because they hold significant control over the market or the product.

Oligopoly

A market structure in which a small number of firms dominate the market, leading to limited competition and possibly higher prices for consumers.