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Llana [10]
3 years ago
5

Cazden Motors' stock is trading at $30 a share. Call options on the company's stock are also available, some with a strike price

of $25 and some with a strike price of $35. Both options expire in three months. Which of the following best describes the value of these options?
a. The options with the $25 strike price will sell for less than the options with the $35 strike price.
b. The options with the $25 strike price have an exercise value greater than $5.
c. The options with the $35 strike price have an exercise value greater than $0.
d. If Cazden's stock price rose by $5, the exercise value of the options with the $25 strike price would also increase by $5.
e. The options with the $25 strike price will sell for $5.
Business
1 answer:
slava [35]3 years ago
8 0

Answer:

d. If Cazden's stock price rose by $5, the exercise value of the options with $25 strike price would also increase by $5.

Explanation:

A call option confers a right, not an obligation upon the call buyer to buy a security at a pre determined price, known as exercise price or strike price at a future date.

A call buyer would exercise his right only in the scenarios wherein the strike price is lesser than the current market price on maturity.

Profit of a call buyer is given by = CMP as on expiry - Exercise/Strike price - Option premium paid

wherein CMP=  Current Market Price

A call option is "in the money" when it's strike price is less than it's current market price. In the given case, it means if the CMP today represents CMP upon expiry, call buyer would exercise his right and his gain would be $5 i.e $30 - $25.

Since the $25 exercise option is "in the money", an increase in stock price by $5 will also increase the strike price by $5.

 

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as a footnote in financial statements or on the balance sheet

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When a loss can be reasonably estimated as seen from the question, it should be written as a footnote on a financial statement or on a balance sheet.

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dar Grove Industries produces and sells a cell phone-operated home security control. Information regarding the costs and sales o
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Answer:

.................................................................................................

Particulars                              Unit cost       Amount

Sales income                         $ 47            $ 376,000      

Less: Variable cost                $ 24           $ 192,000

---------------------------------------------------------------------------

Contribution Margin             $ 13           $ 184,000

Less: Fixed cost                                        $ 124,000

---------------------------------------------------------------------------

Net income                                                $ 60,000

...................................................................................................

Explanation:

Given:

Unit selling price = $ 47

Variable cost = $ 24

Total monthly fixed cost = $ 124,000

Number of units sold = 8,000

CVP income statement for Cedar Grove Industries for the month of May is as:

.................................................................................................

Particulars                              Unit cost       Amount

Sales income                         $ 47            $ 376,000      

Less: Variable cost                $ 24           $ 192,000

---------------------------------------------------------------------------

Contribution Margin             $ 13           $ 184,000

Less: Fixed cost                                        $ 124,000

---------------------------------------------------------------------------

Net income                                               $ 60,000

...................................................................................................

here, the amount is for the total unit i.e 8000 units multiplied by the unit cost

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Answer:

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