Consider a Call Option on a Stock That Pays Dividends $q > 0$

question 5

Multiple Choice

Consider a call option on a stock that pays dividends at the rate $q > 0$ . Which of the following statements is most valid for the Black-Scholes model?

• A) The call is worth more than a call on an equivalent stock that pays no dividends.
• B) The probably of the option finishing up in the money is greater than that of a call on an equivalent stock that pays no dividends.
• C) The time value of the call is greater than that of a call on an equivalent stock that pays no dividends.
• D) None of the above.

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Definitions:

Potential Purchaser

An individual or entity showing interest in buying a product or service, but who has not yet made a purchase decision.

Adverse Possession

An involuntary property transfer in which a person acquires ownership of property by treating a piece of real property as his or her own, without protest or permission from the owner.

Real Property

Land and anything permanently attached to it, such as buildings and trees, as opposed to personal property, which can be moved.

Ownership

The state or fact of exclusive rights and control over property, which can be an object, land/real state, intellectual property, or something else.