UGM June 2019 Q92
0. What is the payoff at maturity of a long call below the strike price?
- Option : B
- Explanation : If actual units produced are lower than the budgeted level of production the total variable costs will be lower than what was originally budgeted. For example, if we have variable costs of £5.00 per unit and we budget to produce 1,000 units we could expect total variable costs to be £ 5,000. If we only made 900 units the variable costs would be lower than that budgeted and would stand at 900 × £ 5.00 = 4,500. Fixed costs would not change as they are not affected by output and the actual unit variable costs would stay the same.
