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:

Fatty Acid

Carboxylic acids with long aliphatic chains, which can be saturated or unsaturated, and are key components of lipids in living organisms.

Insoluble

A substance that does not dissolve in a specific solvent under certain conditions.

Phosphatidyl Choline

A major component of biological membranes, also known as lecithin, involved in membrane-mediated cell signaling and metabolism.

Lecithin

A fatty substance found in plant and animal tissues, used as an emulsifier in food production and as a supplement.