Consider buying the call option, if the price of stock rises then the buyer of call option has __________?
Correct answer: C. high potential of profit
- A. low potential of losses
- B. high potential of losses
- C. high potential of profit
- D. low potential of profit
Explanation
A call option gives the right to buy at a fixed exercise price, so a rise in the stock price increases its potential payoff. The buyer’s loss is generally limited to the premium paid, while profit potential can be substantial.
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About Business Finance
Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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