What Happens to an Option If the Underlying Stock Has

question 35

Multiple Choice

What happens to an option if the underlying stock has a 3-for-1 split?

• A) There is no change in either the exercise price or in the number of options held.
• B) The exercise price will adjust through normal market movements; the number of options will remain the same.
• C) The exercise price would become one-third of what it was, and the number of options held would triple.
• D) The exercise price would triple, and the number of options held would triple.
• E) There is no standard rule-each corporation has its own policy.

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Definitions:

National Monetary Unit

The official currency of a country, used as a medium of exchange and standard of value.

Foreseeable Future

A period during which it is reasonably expected that current conditions will continue or the current plans will not change significantly.

Financial Accounting

The field of accounting focused on the summary, analysis, and reporting of financial transactions related to a business, leading to the preparation of financial statements.

External Parties

Individuals or entities outside of a company's internal operations, such as investors, creditors, regulators, and customers, interested in its financial information.