BLW Corporation Is Considering the Terms to Be Set on the Options

question 16

Multiple Choice

BLW Corporation is considering the terms to be set on the options it plans to issue to its executives.Which of the following actions would decrease the value of the options, other things held constant?

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

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Definitions:

Low-Dividend Policy

A strategy adopted by companies to retain more earnings by distributing lower dividends to shareholders, typically to reinvest in the company's growth.

Corporate Investors

Organizations that invest in other companies’ securities, often for strategic purposes beyond mere financial gain.

Low-Dividend Policy

A low-dividend policy is a corporate strategy where a company decides to retain a larger portion of earnings for reinvestment rather than distributing it to shareholders as dividends.

New Equity Sales

The process of selling new shares of a company to investors to raise capital.