An American-Style Call Option with Six Months to Maturity Has

question 47

Multiple Choice

An American-style call option with six months to maturity has a strike price of $35.The underlying stock now sells for $43.The call premium is $12. If the company unexpectedly announces it will pay its first-ever dividend three months from today, you would expect that

• A)the call price would increase.
• B)the call price would decrease.
• C)the call price would not change.
• D)the put price would decrease.

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Definitions:

Machine-Hours

A measure of the amount of time machines are run, often used as a base for allocating factory overhead.

Total Job Cost

The cumulative cost of materials, labor, and overhead for a specific job or project.

Job-Order Costing

A cost accounting system that assigns manufacturing costs to an individual product or batch of products, making it possible to track the cost of specific jobs.

Machine-Hours

A measure of production time, used as a basis for allocating manufacturing overhead costs based on the number of hours machines are operated.