An American-Style Call Option with Six Months to Maturity Has

question 9

Multiple Choice

An American-style call option with six months to maturity has a strike price of $35.The underlying stock now sells for $43.The call premium is $12.If the company unexpectedly announces it will pay its first-ever dividend 3 months from today,you would expect that

• A) the call price would increase.
• B) the call price would decrease.
• C) the call price would not change.
• D) the put price would decrease.
• E) the put price would not change.

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Definitions:

Monthly Expenses

The total amount of money spent by an individual or organization within a month, covering all necessary and discretionary expenses.

Unit Variable Cost

The cost associated with producing one additional unit of a product, not including fixed costs.

Variable Cost

Costs that vary directly with the level of production or service activity, such as materials and labor costs, unlike fixed costs which remain constant regardless of activity levels.

Fixed Cost

Represents business expenses that remain constant regardless of the level of production or sales activity, such as rent, salaries, and insurance premiums.