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

question 18

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 only.
• C) less valuable because cash dividends are paid on stock only.
• D) less valuable if the dividend paying stock is in-the-money while the non-dividend paying stock if out-of-the-money.

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Definitions:

Herfindahl Index

A measure of market concentration that sums the squares of the market shares of all firms in the market, used to assess competition levels.

Federal Merger Guidelines

Regulations and criteria established by federal agencies to evaluate and approve or disapprove proposed mergers, ensuring fair competition.

Herfindahl Index

A measure of the size of firms in relation to the industry and an indicator of the amount of competition among them, calculated by squaring the market share of each firm within the industry and then summing the total.

Vertical Merger

A merger between two companies that operate at different stages of the production process for a specific product.