Asked by Veronica Vaselin on Jun 05, 2024
Verified
Higher dividend-payout policies have a __________ impact on the value of the call and a __________ impact on the value of the put compared to lower dividend-payout policies.
A) negative; negative
B) positive; positive
C) positive; negative
D) negative; positive
E) zero; zero
Dividend-Payout Policies
Strategies a company uses to decide the portion of profits it will distribute to shareholders as dividends versus retaining for reinvestment.
- Assess the role of assorted factors like dividend policies, rates of interest, the period until expiration, and fluctuations in stock prices on the pricing of call and put options.
Verified Answer
CB
Carissa BuenoJun 11, 2024
Final Answer :
D
Explanation :
Higher dividend-payout policies decrease the value of a call option because dividends reduce the stock price when they are paid out, making it less likely that the call will be in the money. Conversely, higher dividends increase the value of a put option, as the reduction in stock price makes it more likely that the put will be in the money.
Learning Objectives
- Assess the role of assorted factors like dividend policies, rates of interest, the period until expiration, and fluctuations in stock prices on the pricing of call and put options.
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