Suppose the Underlying Stock Pays a Dividend Before the Expiration

question 16

Multiple Choice

Suppose the underlying stock pays a dividend before the expiration of options on that stock.This will

• A)increase the value of a call option and increase the value of a put option.
• B)decrease the value of a call option and decrease the value of a put option.
• C)increase the value of a call option and decrease the value of a put option.
• D)increase the value of a put option and decrease the value of a call option.

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Definitions:

Expiration Date

The specified date on which the options contract or other financial instrument becomes void and ceases to exist.

Marking-To-Market

The process of updating the value of an asset or liability to reflect its current market value rather than its book value.

Troy Ounce

A unit of measure for precious metals that is approximately 31.1035 grams, traditionally used in the pricing and trading of these commodities.

September Silver Contract

An agreement for the future delivery of silver in September, often used as a hedging tool or investment in the commodities market.