Which of the Following Statements Is Most Correct, Holding Other

question 24

Multiple Choice

Which of the following statements is most correct, holding other things constant, for XYZ Corporation's traded call options?

• A) The higher the strike price on XYZ's options, the higher the option's price will be.
• B) Assuming the same strike price, an XYZ call option that expires in one month will sell at a higher price than one that expires in three months.
• C) If XYZ's stock price stabilizes (becomes less volatile), then the price of its options will increase.
• D) If XYZ pays a dividend, then its option holders will not receive a cash payment, but the strike price of the option will be reduced by the amount of the dividend.
• E) The price of these call options is likely to rise if XYZ's stock price rises.

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Definitions:

Economic Recession

A period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.

Homogeneous Products

Products that are essentially identical in nature and can easily be substituted for one another, typically found in highly competitive markets.

Undifferentiated Selling

describes a marketing strategy where a company offers the same product or message to all potential customers, without segmentation or personalization.

Homogeneous Selling

A sales approach where the products or services offered are uniform or very similar in characteristics.