Financial Risk Manager Part 1

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Explanation:

A is false. A 20% stock dividend is equivalent to a 6-for-5 stock split, so Peter's contract would be adjusted to 120 shares at an adjusted strike of $12.50.

The other statements are true:

B: Intrinsic value is preserved under the contract adjustment. At the original prices, intrinsic value is $(18 - 15) \times 100 = 300$ .
C: A 1-for-5 reverse split adjusts the contract to 20 shares at a strike of $75.00.
D: A 2-for-1 split adjusts the contract to 200 shares at a strike of $7.50.

So the false statement is A.

Explanation:

A is false. A 20% stock dividend is equivalent to a 6-for-5 stock split, so Peter's contract would be adjusted to 120 shares at an adjusted strike of $12.50.

The other statements are true:

B: Intrinsic value is preserved under the contract adjustment. At the original prices, intrinsic value is $(18 - 15) \times 100 = 300$ .
C: A 1-for-5 reverse split adjusts the contract to 20 shares at a strike of $75.00.
D: A 2-for-1 split adjusts the contract to 200 shares at a strike of $7.50.

So the false statement is A.

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Q-724.2. Last week, Peter purchased one contract for 100 call options on StrongDrill Corporation (ticker: SDC) with a strike price of `$15.00`. The options on SDC are exchange-traded. Today the stock price is `$18.00` so Peter's options are "in the money." Consider the impact of the following four corporate actions if they were immediately affected, when the stock price is `$18.00`:

I. 2-for-1 split
II. 20.0% stock dividend
III. 1-for-5 reverse split
IV. 12.0% one-time cash dividend

Each of the following statements is true EXCEPT which is false?

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MManit

Last updated: April 18, 2026 at 11:32

The (II.) stock dividend will have no impact on the strike price or quantity of Peter's option position

75.0%

Peter's intrinsic value in his option position is $300.00 and it will be unchanged by any of the four scenarios

25.0%