Manufacturers Who Are Concerned About Volatile Commodity Prices Often Use

Manufacturers who are concerned about volatile commodity prices often use option contracts to alter their risks. What is the worst-case scenario for a seller of put options on corn with a strike price of $4.75 per bushel?

A) If corn prices drop below $4.75 the option premium will be lost.
B) If corn prices rise above $4.75 the option premium will be lost.
C) Losses can be large if prices drop sufficiently.
D) Losses can be unlimited if prices rise sufficiently.

Correct Answer:

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