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:

Equity Multiplier

A financial leverage ratio that measures a company's total assets financed by stockholders' equity.

Sales On Account

Transactions where the customer purchases goods or services on credit, agreeing to pay the seller at a later date.

Cost Of Goods Sold

The direct costs attributable to the production of goods sold by a company, including material and labor costs.

Operating Cycle

The duration of time from the acquisition of inventory to the collection of cash from accounts receivable, representing the process of turning assets into cash.