Alicia is considering purchasing a small building with the intent of opening a craft and sewing center.The cost of the building is $49,000 and the cost to open the center is an additional $150,000.If the center is opened and no other competition is nearby the project will provide a hefty return.However,should the vacant building down the street be used for a competitive type entity,then the center could be a losing proposition.Assume the building is purchased but the opening of the center is delayed.This situation would best be described as ________ on a craft and sewing center.
A)purchasing a call option
B)writing a call option
C)purchasing a put option
D)writing a put option
E)exercising a call on the land and writing a put

Question

Quizplus · Accepted Answer

Purchasing a call option best describes the situation because Alicia has the right (but not the obligation) to open the craft and sewing center after buying the building, similar to how a call option gives the holder the right to buy an asset at a set price within a specific timeframe.

Alicia Is Considering Purchasing a Small Building with the Intent