Question #66
Reading: Reading 31 Valuation of Contingent Claims
PDF File: Reading 31 Valuation of Contingent Claims.pdf
Page: 30
Status: Unattempted
Correct Answer: A
Question
Compared to the value of a call option on a stock with no dividends, a call option on an identical stock expected to pay a dividend during the term of the option will have a:
Answer Choices:
A. higher value only if it is an American style option
B. lower value in all cases
Explanation
An expected dividend during the term of an option will decrease the value of a call option.