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?
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

Quizplus · Accepted Answer

If the exercise price of the option is increased, it will be more difficult for the executives to make a profit when they exercise the option. This will decrease the value of the options. The other choices would generally increase the value of the options.

BLW Corporation Is Considering the Terms to Be Set on the Options