There's a Call Option Written for 100 Shares of GM

question 31

Multiple Choice

There's a call option written for 100 shares of GM stock for $85.00 a share, prior to the third Friday of October 2006: The option writer:

• A)Has the option but not the requirement of selling 100 shares of GM for $85.00.
• B)Will sell 100 shares of GM for $85.00 on the third Friday of October 2006.
• C)Has the option to back out of this contract prior to the third Friday of October 2006.
• D)Is required to post margin.

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Definitions:

Convertible Preferred Stock

A type of preferred stock that holders can convert into a predetermined amount of the company's common stock, usually at specific times.

Common Stock

A type of security that signifies ownership in a corporation and represents a claim on part of the corporation's profits and assets.

Par Value

The nominal or face value of a stock or bond as stated by the issuer, which does not necessarily reflect its market value.

Cumulative Preferred Stock

A type of preferred stock where dividends accumulate if not paid, with all past unpaid dividends required to be paid out before any dividends can go to common stockholders.