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

question 11

Multiple Choice

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

• A) more valuable because of the extra dividend payment.
• B) equal in value because cash dividends are paid on stock.
• C) less valuable because cash dividends are paid on stock.
• D) less valuable if the dividend paying stock is in-the-money while the non-dividend paying stock if out-of-the-money.

---

Definitions:

Negative Profitability

A financial situation where a business or organization incurs more expenses than revenues, leading to a net loss.

Product Life Cycle

A concept that describes the stages a product goes through from introduction to growth, maturity, and decline in the market.

Industry

A group of companies that operate in the same segment of the economy, producing or providing similar products, services, or sources of revenue.

Price-Based Competition

A competitive strategy focusing on setting prices lower than competitors to attract price-sensitive customers.