Tele-Tech Com Has Announced a Large Loss in Their On-Line

question 41

Multiple Choice

Tele-Tech Com has announced a large loss in their on-line services division causing the price of Tele-Tech Com stock to drop but the price volatility of the stock is not expected to drop. Which of the following correctly identifies the impact of these changes on the call option of Tele-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 volatility normally will have a negative effect on the price of the call option while the lower price of the stock will cause the price of the call option to increase.
• D) The volatility normally will have a positive effect on the price of the call option while the lower price of the stock will cause the price of the call option to decrease.
• E) Volatility has no direct effect on the price of the call option while the lower price of the stock will cause the price of the call option to decrease.

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Definitions:

External Failure Costs

Costs that occur when products fail to meet quality standards after being delivered to customers, including returns, repairs, and warranty claims.

Opportunity Costs

The financial impact of skipping the immediate next favorable choice in the process of making a decision.

Net Profit Margin

A financial ratio representing the percentage of revenue that remains as profit after all expenses have been deducted.

Performance Measure

Metrics or indicators used to assess, compare, and track the performance or efficiency of different aspects of an organization.