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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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Answer:

E) bait and switch

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2 years ago
Lara Technologies is considering a cash outlay of $227,000 for the purchase of land, which it could lease out for $36,150 per ye
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Answer:

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6 0
2 years ago
Normal and inferior goods are differently impacted by recessions. Examples include new cars versus fast food. The textbook examp
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Answer:

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Flights in low-cost airlines.

Consider the impact of economic recessions and expansions on normal goods.

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discuss how revenues of inferior goods producers are expected to be affected by economic recessions and expansions.

In economic recessions, revenues for producers of inferior goods are expected to rise because demand for inferior goods grows. However, because inferior goods are precisely cheaper, this does not necessarily mean that every inferior good producer will make a lot of money.

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Answer:

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Return on equity = Return on assets × Equity multiple

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