Call options on XYZ Corporation's common stock trade in the market. Which of the following statements is
Question:
Call options on XYZ Corporation's common stock trade in the market. Which of the following statements is most correct, holding other things constant?
a. 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.
b. 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.
c. If XYZ's stock price stabilizes (becomes less volatile), then the price of its options will increase.
d. The price of these call options is likely to rise if XYZ's stock price rises.
e. The higher the strike price on XYZ's options, the higher the option's price will be.
Auditing and Assurance Services
ISBN: 978-0077862343
6th edition
Authors: Timothy Louwers, Robert Ramsay, David Sinason, Jerry Straws