The Call Option on a Dividend Paying Equity Compared to a Non-Dividend

question 35

Multiple Choice

The call option on a dividend paying equity compared to a non-dividend paying equity is:

• A)more valuable because of the extra dividend payment.
• B)equal in value because cash dividends are paid on equity only.
• C)less valuable because after cash dividends are paid out the value of equity decreases.
• D)less valuable if the dividend paying equity is in-the-money while the non-dividend paying
• Equity if out-of-the-money.
• E)None of the above.

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Definitions:

Variance

A statistical measurement of the dispersion between numbers in a data set, indicating how much the numbers differ from each other and from the mean.

Squared Deviation

The squared difference between each data point and the mean, used in statistical analysis to measure variance.

Arithmetic Average Return

The sum of returns in each period divided by the number of periods, often used to calculate the average return of an investment.

Multi-year Period

An extended timeframe that spans over multiple years, often used in the context of financial planning or contracts.