How Is the Price of a European Call Option Impacted

question 19

Multiple Choice

How is the price of a European call option impacted by a $2.00 dividend being paid immediately before expiration of a 6 month option if interest rates are 5.0%?

• A) Decreased by $1.95
• B) Decreased by $2.00
• C) Increased by $1.95
• D) Increased by $2.00

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Definitions:

GST and PST

Taxes applied to the sale of goods and services; GST is a federal tax in Canada, while PST is a provincial sales tax.

Sold

The act of exchanging a product or service for money or other consideration.

Weighted Average

A calculation that takes into account the varying degrees of importance of the numbers in a data set, assigning weights to each number.

Shares Outstanding

The total number of shares of a corporation that are currently owned by all its shareholders, including share blocks held by institutional investors and restricted shares owned by the company’s officers and insiders.