Question
23. A company declares a 4-for-one stock split; the firm's stock has call options written on it. The stock has a current price of $80.
23. A company declares a 4-for-one stock split; the firm's stock has call options written on it. The stock has a current price of $80. If the traditional option assumption of protection against "changes" is in place, then the characteristics of this option change in which of the following ways:
a. the terms do not change;
b. the strike price rises to reflect the additional shares and the option allows the holder to purchase one share at the new price;
c. the strike price is reduced to $20 and the option gives the holder the right to purchase four shares;
d. the option value decreases by one fourth, while the stock price is reduced to $20.
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