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