Assuming Everything Else Is Constant, When a Stock Goes Ex-Rights

question 38

Multiple Choice

Assuming everything else is constant, when a stock goes ex-rights its price should:

• A) decrease since the stockholder is losing an option.
• B) increase since the corporation no longer has the right to force the stockholder to convert.
• C) remain the same since an efficient market would anticipate this change.

Identify different types of options (American, European, digital, and barrier) and understand their distinct characteristics.

Calculate potential profits, losses, and breakevens for basic option trading strategies.

Recognize the advantages of exchange-traded options over OTC options.

Discern the financial outcomes and risks associated with complex option positions.

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Definitions:

Yield Management Systems

Systems used by companies, especially in the hospitality and airline industries, to adjust prices and availability of products or services in response to market demand, maximizing revenue.

Capacity Utilization

Refers to the percentage of total production capacity that is actually being used by a company over a specific period.

Mass Customization

A marketing and manufacturing technique that combines the flexibility and personalization of custom-made products with the low unit costs associated with mass production.

Market Segmentation

The process of dividing a heterogeneous market into smaller, more homogeneous groups of customers with similar needs, characteristics, or behaviors.