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Sindrei [870]
2 years ago
13

Warnes Motors' stock is trading at $20 a share. Three-month call options with an exercise price of $20 have a price of $1.50. Wh

ich of the following will occur if the stock price increases 10% to $22 a share?
a.The price of the call option will increase by $2.
b.The price of the call option will increase by less than $2, but the percentage increase in price will be more than 10%.
c.The price of the call option will increase by less than $2, and the percentage increase in price will be less than 10%.
d.The price of the call option will increase by more than $2.
e.The price of the call option will increase by more than $2, but the percentage increase in price will be less than 10%.
Business
1 answer:
jek_recluse [69]2 years ago
8 0

Answer:

B. The price of the call option will increase by less than $2, but the percentage increase in price will be more than 10%.

Explanation:

Given

Trading price = $20

Exercise price of call option = $20

Call option price = $1.50

Price increment = 10% to $22

It's not be noted that the discounted present value of a price of an option is represented by its expected payoff.

An increment of $2 in stock price attracts an increment of more than $2 in the payoff option.

Having highlighted that, it's also to be noted that the increment in expected payoff will be by an amount less than $2 and same with present value because the possibility is less than 1. So, the price of the option will increase by less than $2.

Moving to the percentage increase;

This will be larger than 10%.

This is because when stock price increases by 10%, the value of the option will increase by more than 10%.

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2 years ago
During the year ended December 31, 2018, Kelly’s Camera Shop had sales revenue of $180,000, of which $90,000 was on credit. At t
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Answer:

(a) On December 10, a customer balance of $1,400 from a prior year was determined to be uncollectible

Dr Sales Returns and Allowances $ 1,400  

Cr Accounts Receivable   $ 1,400

(b) On December 31, a decision was made to continue the accounting policy of basing estimated bad debt losses on 2 percent of credit sales for the year.

Dr Bad Debt Expense $ 752  

Cr Allowance for Uncollectible Accounts  $ 752

Explanation:

Initial Balance  

Dr Accounts Receivable   $ 12,000

Cr Allowance for Uncollectible Accounts  $ 500

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Dr Accounts Receivable  $ 60,000  

Cr Sales  $ 60,000

Collections of accounts receivable during 2018 amounted to $58,000.  

Dr Cash $ 58,000  

Cr Accounts Receivable   $ 58,000

(a) On December 10, a customer balance of $1,400 from a prior year was

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Dr Allowance for Uncollectible Accounts $ 1,400  

Cr Accounts Receivable   $ 1,400

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6 0
3 years ago
Supplied goods costing
aivan3 [116]

Answer:

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Cr Sales 627

Explanation:

Preparation of Journal entry

If the amount of RS. 600 is the goods costing that was supplied to mohan in which the issued invoice is 10% above cost with a 5% discounts the First step will be to calculate the Invoice price.

Calculation of the invoice price

Invoice price=[600+10%*600)+[5%*(600+10%*600)]

Invoice price=(600+60)-[5%*(600+60)]

Invoice price=660-(5%*660)

Invoice price=660-33

Invoice price=627

Now let prepare the Journal entry

Dr Mohan account 627

Cr Sales 627

(Being to record good sold to Mohan)

7 0
3 years ago
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