BLW 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? Select one:

a. The exercise price of the option is increased.

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

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

d. BLW's stock price becomes more risky (higher variance).

e. BLW's stock price suddenly increases.

Question

Business

Zara Watson

13 June, 04:54

BLW 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? Select one:

a. The exercise price of the option is increased.

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

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

d. BLW's stock price becomes more risky (higher variance).

e. BLW's stock price suddenly increases.

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Answers (1)

Know the Answer?

Aracely Mendez · Answer 1

Option A

Explanation:

Exercise price is the base price at which a share can be sold and is called the strike price of an option, increase in exercise price would reduce its market value because the value is the difference between it exercise price and market price.