Answer: B) The option premium is greater or equal to its intrinsic value because of the time premium.
Explanation:
The option premium can be calculated by adding the time premium and the intrinsic value. The time premium is the part of the option premium that accounts for the time remaining till the premium matures while the intrinsic value is the difference between the value of underlying asset and the strike price.
As the time premium can be zero but never negative, the option premium can either be greater than its intrinsic value or equal to it. It cannot be lower than it because of the time premium.
To get the break-even point, the Total Cost must equal to
the Total Revenue or Profit. The Total Cost is the sum of Fixed Costs and
Incremental Costs. Fixed costs are depreciation, advertising and insurance which
is equal to $5,871 per month. Incremental Costs are weed and feed materials,
direct labor, and fuel which is equal to $32 per lawn. The Marginal Revenue is
equal to $89 per lawn. Letting “N” to be the break-even point in number of
lawns, the break-even equation becomes: $5,871 + $32N = $89N. Then calculating
N, the break-even number of lawns is equal to 103.
Answer:
The answer is "2,040".
Explanation:
Since in the event the company needs the oats, it should take a long position today to hedge them. As indicated throughout the question, the price of the halftime show was set, and the present settling price of 218.50 cents was $2,1850. Moreover, the industry wants 20,000 boxes with oats and the next claim is 5,000, and that is why 4 agreements (20000/5 000) occupy a longer time. So the actual market price of $228.70, i.e. $22870, is 228.70 so hedging would have the corresponding profit/loss:
