How Is the Price of a European Call Option Impacted

question 19

Multiple Choice

How is the price of a European call option impacted by a $2.00 dividend being paid immediately before expiration of a 6 month option if interest rates are 5.0%?

• A) Decreased by $1.95
• B) Decreased by $2.00
• C) Increased by $1.95
• D) Increased by $2.00

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Definitions:

Ending Inventory

The cumulative worth of merchandise ready for sale when an accounting period concludes.

Direct Materials

Raw materials that can be directly attributed to the production of goods, forming an essential component of finished products.

Budgeted Sales

An estimate of the sales revenue a company expects to achieve for a certain period, often used for planning and control purposes.

Beginning Inventory

The value of all the inventory that a company has at the start of an accounting period, before any purchases or sales have been made.