What Happens to an Option If the Underlying Stock Has

question 19

Multiple Choice

What happens to an option if the underlying stock has a 2-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-half of what it was, and the number of options held would double.
• D) The exercise price would double, and the number of options held would double.
• E) There is no standard rule-each corporation has its own policy.

---

Definitions:

Demand Deposits

Bank accounts from which deposited funds can be withdrawn at any time without any advance notice to the bank.

Treasury Bills

Short-term government securities issued at a discount from the face value and maturing in a year or less, representing a secure, low-risk investment option.

Credit Card

A Credit Card is a payment card issued by financial institutions that allows cardholders to borrow funds within a pre-approved limit for purchases or cash advances.

Price Stability

A situation in which prices in the economy do not change significantly over time, avoiding inflation and deflation.