Tele-Tech Com Announces a Major Expansion into Internet Services

question 66

Multiple Choice

Tele-Tech Com announces a major expansion into Internet services. This announcement causes the price of Tele-Tech Com stock to increase,but also causes an increase in price volatility of the stock. Which of the following correctly identifies the impact of these changes on a 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 greater uncertainty will cause the price of the call option to decrease. The higher price of the stock will cause the price of the call option to increase.
• D) The greater uncertainty will cause the price of the call option to increase. The higher price of the stock will cause the price of the call option to decrease.
• E) The greater uncertainty has no direct effect on the price of the call option. The higher price of the stock will cause the price of the call option to decreasE.

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Definitions:

Availability Heuristic

A quick mental approach that depends on the first examples that are thought of when assessing a particular subject, idea, technique, or choice.

Critical Thinking

The ability to analyze facts, generate and organize ideas, defend opinions, make comparisons, draw inferences, evaluate arguments and solve problems.

Confirmation Bias

The tendency to search for, interpret, favor, and recall information in a way that confirms one's preexisting beliefs or hypotheses.

Framing Effect

The influence on decision making caused by the way information is presented, rather than the actual information itself.