Which of the Following Is True for a One-Year Call

question 16

Multiple Choice

Which of the following is true for a one-year call option on a stock that pays dividends every three months?

• A) It is never optimal to exercise the option early
• B) It can be optimal to exercise the option at any time
• C) It is only ever optimal to exercise the option immediately after an ex-dividend date
• D) None of the above

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Definitions:

Debt-To-Equity Ratio

The debt-to-equity ratio is a measure of financial leverage, indicating the proportion of company financing that comes from creditors and investors, calculated as total liabilities divided by shareholders' equity.

Cash Coverage Ratio

This ratio measures a company's ability to cover its interest obligations with its cash flow, indicating financial health and risk.

Times Interest Earned Ratio

A financial metric used to measure a company's ability to meet its debt obligations, calculated by dividing earnings before interest and taxes (EBIT) by interest expenses.

Debt-To-Equity Ratio

A ratio demonstrating the balance between shareholder equity and debt in funding a company's assets.