Reference no: EM13252043

1. Volpe Corporation is considering the terms to be set on the options it plans to issue to its executives Which of the following actions would decrease the value of the options, other things held constant?

a. The exercise price of the option is increased.

b. The life of the option is increased, that is, the time until it expires is lengthened.

c. The Federal Reserve takes actions that increase the risk-free rate.

d. Volpe Corporation's stock price becomes more risky.

e. Volpe Corporation's stock price suddenly increases.

2. An investor who writes standard call options against stock held in his or her portfolio is said to be selling what type of options?

a. Put.
b. Naked.
c. Covered.
d. In-the-Money.
e. (c) and (d).

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

a. The higher the strike price on Volpe Corporation's options, the higher the option's price will be.

b. Assuming the same strike price, a Volpe Corporation call option that expires in one month will sell at a higher price than one that expires in three months.

c. If Volpe Corporation's stock price stabilizes - that is, becomes less volatile - then the price of its options will increase.

d. If Volpe Corporation pays a dividend, 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 Volpe Corporation's stock price rises.

Attachment:- Assignment.rar