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.

---

Definitions:

Marginal Cost

An additional cost incurred by producing one more unit of a product or service, a key concept in economics for decision-making.

Inverse Demand Curve

A graphical representation showing the relationship between the price of a good and the quantity demanded when price is the independent variable.

Cournot Duopolists

Firms in a duopoly market structure (two firms) where each firm determines its production level assuming the other firm's production level is fixed, as in the Cournot competition model.

Marginal Costs

The fluctuation in complete costs associated with an increase in production by a single unit.