Question #39
Reading: Reading 31 Valuation of Contingent Claims
PDF File: Reading 31 Valuation of Contingent Claims.pdf
Page: 17
Status: Unattempted
Correct Answer: A
Question
Dividends on a stock can be incorporated into the valuation model of an option on the stock by:
Answer Choices:
A. subtracting the present value of the dividend from the current stock price
B. adding the present value of the dividend to the current stock price
C. subtracting the future value of the dividend from the current stock price
Explanation
The option pricing formulas can be adjusted for dividends by subtracting the present value
of the expected dividend(s) from the current asset price.