What Happens to an Option If the Underlying Stock Has

question 30

Multiple Choice

What happens to an option if the underlying stock has a 3-for-1 split?

• A)There is no change in either the exercise price or in the number of options held.
• B)The exercise price will adjust through normal market movements; the number of options will remain the same.
• C)The exercise price would become one-third of what it was, and the number of options held would triple.
• D)The exercise price would triple, and the number of options held would triple.

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Definitions:

First-In, First-Out Method

An inventory valuation method where the oldest inventory items are recorded as sold first, leaving the newest inventory in stock.

Equivalent Units

A concept in process costing, used to convert partially completed units into a number of equivalent fully completed units to uniformly measure and assign costs.

Circuit Prep Department

A specialized section within an electronics manufacturing or repair facility where circuits are prepared or assembled.

First-In, First-Out Method

An inventory valuation method where the oldest inventory items are recorded as sold first, potentially affecting cost of goods sold and ending inventory valuation.