1. Which one of the following would be considered a contingent liability? One Answer
A. A company owes $12,000 on inventories purchased on credit.
B. A company estimates that it will most likely have to pay $15,000 to the EPA for a chemical spill.
C. A company has access to a line of credit with a bank in the amount of $23,000.
D. A company believes that it might lose a lawsuit and damages could be $13,000.
E. None of the above
2. An investor is bearish on natural gas and decided to long a put with a strike price of $3.00. If the option was purchased for a price of $0.28 and current spot price of natural gas is $2.71, what is the break-even point for the investor? (Hint: Break-even point is the stock price at which the investor will have exactly zero profit or loss. Be sure to consider the effect of the option premium.)
a. $0.28
b. $2.71
c. $2.72
d. $3.00
e. $3.28