GCC Corporation Is Planning to Issue Options to Its Key

question 26

Multiple Choice

GCC Corporation is planning to issue options to its key employees, and it is now discussing the terms to be set on those options. Which of the following actions would decrease the value of the options, other things held constant?

• A) GCC's stock price suddenly increases.
• B) The exercise price of the option is increased.
• C) The life of the option is increased, i.e., the time until it expires is lengthened.
• D) The Federal Reserve takes actions that increase the risk-free rate.
• E) GCC's stock price becomes more risky (higher variance).

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Definitions:

Sensorimotor Stage

The first developmental stage in Piaget's theory of cognitive development, where infants learn about the world primarily through their senses and motor actions.

Fascinated

Intensely interested or attracted by something or someone, often leading to focused attention or admiration.

Flush

The act of cleansing something (such as a toilet) by causing a large flow of water to pass through it, or a sudden reddening of the face typically caused by emotions or heat.

Object Permanence

The understanding that objects continue to exist even when they cannot be observed, seen, or heard, which typically develops in infancy.