Which of the Following Events Is Likely to Decrease the Value

question 34

Multiple Choice

Which of the following events is likely to decrease the value of call options on the common stock of GCC Company?

• A) An increase in GCC's stock price.
• B) An increase in the exercise price of the option.
• C) An increase in the amount of time until the option expires.
• D) An increase in the risk-free rate.
• E) GCC's stock price becomes more risky (higher variance).

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Definitions:

Cash Dividend

A portion of a company's earnings distributed to shareholders in cash.

Credit Balance

A situation in an account where the sum of credits exceeds the sum of debits, indicating the company owes money.

Retained Earnings

The portion of a company's profit that is held or retained and saved for future use, reinvestment, or debt repayment instead of being paid out as dividends to shareholders.

Stockholders' Equity

The ownership interest of stockholders in a corporation, represented by the residual assets after deducting liabilities.