Using the Black-Scholes Model to Value a Call Option Shows

question 52

Multiple Choice

Using the Black-Scholes model to value a call option shows that when the other four variables are held fixed, the option price will be higher if the

• A) price of the stock rises.
• B) time to maturity is shorter.
• C) exercise price is higher.
• D) riskfree rate is lower.

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Definitions:

Consolidation Adjustments

Modifications made to combine the financial statements of parent and subsidiary companies into a single set of statements.

Equity

The residual interest in the assets of the entity after deducting all its liabilities.

Pre-Acquisition Entry

An accounting entry made to adjust the values of the acquiree's assets and liabilities to their fair values at the acquisition date before they are consolidated.

Non-Controlling Interest

represents the portion of equity in a subsidiary not attributable, directly or indirectly, to the parent company, reflecting the minority shareholders' claim on the subsidiary's assets and earnings.