Using the Data for the Problem, Assume That You Entered

question 23

Multiple Choice

Using the data for the problem, assume that you entered into an option with Goldman Sachs for one contract worth £75,000 at a premium of $.0325, a strike price of 155 and a brokerage fee of $25 to get into the option and also to exercise the option. Would you exercise the option?

• A) yes.
• B) no
• C) It depends on the June 1 spot rate.
• D) This is not an appropriate situation for an option.

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Definitions:

High Dividends

Refers to stocks or securities that offer a significant dividend payout in relation to their market price, often viewed as an indicator of a company's potential for long-term growth.

Cash Dividends

Payments made by a corporation to its shareholders, usually in the form of cash, out of its profits or reserves.

Dividend Yield

An economic measure demonstrating the amount a firm distributes in dividends per year as compared to its share price.

Residual Dividend Policy

Residual Dividend Policy is a strategy where a company pays dividends to shareholders from the residual or remaining equity only after all project capital needs are met.