Financial Risk Manager Part 1

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Explanation:

The false statement is B.

A 4-for-1 stock split multiplies the share count by 4 and divides the strike by 4, so 100 shares become 400 shares and the strike becomes $12.50.
A 10% stock dividend increases the number of shares by 10%, so the contract should become one to sell 110 shares, and the strike should be adjusted downward to about $45.45, not 90 shares with a strike of $55.56.
A cash dividend generally does not affect standardized exchange-traded option contract terms.
A reverse 1-for-5 split reduces the share count to 20 and increases the strike to $250.00.

Therefore, B is the only incorrect choice.

Explanation:

The false statement is B.

A 4-for-1 stock split multiplies the share count by 4 and divides the strike by 4, so 100 shares become 400 shares and the strike becomes $12.50.
A 10% stock dividend increases the number of shares by 10%, so the contract should become one to sell 110 shares, and the strike should be adjusted downward to about $45.45, not 90 shares with a strike of $55.56.
A cash dividend generally does not affect standardized exchange-traded option contract terms.
A reverse 1-for-5 split reduces the share count to 20 and increases the strike to $250.00.

Therefore, B is the only incorrect choice.

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MManit

Last updated: April 18, 2026 at 11:32

If there is a 4-for-1 stock split, the option contract becomes one to sell 400 shares with an exercise price of $12.50

33.3%

If there is a 10.0% stock dividend, the option contract becomes one to sell 90.0 shares with an exercise price of $55.56

66.7%

If there is $2.00 cash dividend declared, there is no effect on the contract

If there is a reverse 1-for-5 stock split, the option contract becomes one to sell 20 shares with an exercise price of $250.00