Tech Com Announces a Major Expansion into Internet Services

question 13

Multiple Choice

Tech Com announces a major expansion into Internet services. This announcement causes the price of Tech Com stock to increase, but also causes an increase in price volatility of the stock. Which of the following correctly identifies the impact of these changes on the call option of Tech Com?

• A) Both changes cause the price of the call option to decrease
• B) Both changes cause the price of the call option to increase
• C) The greater uncertainty will cause the price of the call option to decrease. The higher price of the stock will cause the price of the call option to increase
• D) The greater uncertainty will cause the price of the call option to increase. The higher price of the stock will cause the price of the call option to decrease

---

Definitions:

General Ledger

A complete record of all financial transactions over the life of a company, used to compile the financial statements.

Ledger Accounts

Accounts contained within a ledger, representing a summary of all financial transactions related to that account's category.

Normal Balance

The side (debit or credit) of an account that is usually increased, reflecting its nature as an asset, liability, equity, revenue, or expense.

Equity

The ownership interest held by shareholders in a corporation, calculated as total assets minus total liabilities.