If the Underlying Stock Pays a Dividend Before the Expiration

question 70

Multiple Choice

If the underlying stock pays a dividend before the expiration of the options that will have the following effect on the price of the options:
I. increase the value of the call option II) increase the value of the put option
III. decrease the value of the call option
IV. decrease the value of the put option

• A) I and II only
• B) III and IV only
• C) I and IV only
• D) II and III only

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Definitions:

Dissolved

Refers to the process of a substance becoming incorporated into a liquid, resulting in a solution.

Notice

Officially informing someone of a fact or situation, often required by law or agreement for certain actions.

Statute of Frauds

A legal concept that requires certain types of contracts to be in writing and signed by the party to be charged, to prevent fraud and perjuries.

Limited Partner

An investor in a partnership who has limited liability to the extent of their investment in the partnership and does not actively manage the business.