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:

Product Differentiation

The marketing process of distinguishing a product or service from others in the market to make it more attractive to a particular target market.

Demand Curve

A graph representing the relationship between the price of a good and the quantity demanded by consumers.

Barriers To Entry

Are obstacles that make it difficult for new competitors to enter a market, including high startup costs, strict regulations, and established brand loyalty among consumers.

Excess Capacity

Plant resources that are underused when imperfectly competitive firms produce less output than that associated with achieving minimum average total cost.