The Current Market Value of a Stock Option Contract to Purchase

question 231

Multiple Choice

The current market value of a stock option contract to purchase 1,000 shares of IBM stock at a price of $100 that can be exercised five years from now would

• A) increase if the expected future price of IBM stock rose.
• B) increase if the expected future price of IBM stock fell.
• C) decrease if the expected future price of IBM stock rose.
• D) remain unchanged regardless of the expected future price of IBM stock.

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Definitions:

Accounts Receivable

Outstanding amounts that customers owe to a business for delivered goods or services yet to be paid for.

Supplies Expense

Costs associated with the consumable items used in the daily operations of a business, which may include office or manufacturing supplies.

Buildings

Assets classified in accounting, representing structures owned by a business for purposes such as offices, manufacturing, or storage.

Prepaid Insurance

Insurance premiums paid in advance by a company, which are recorded as an asset on the balance sheet until the coverage period lapses.