Asked by Madison Brewer on Jul 14, 2024
Verified
Lower dividend-payout policies have a __________ impact on the value of the call and a __________ impact on the value of the put compared to higher dividend-payout policies.
A) negative; negative
B) positive; positive
C) positive; negative
D) negative; positive
E) zero; zero
Dividend-Payout Policies
Strategies adopted by companies to decide the size and pattern of cash dividends to shareholders.
- Scrutinize the impact that different conditions, such as dividend policies, interest rate environments, time to maturity, and stock price volatility, have on the pricing structure of call and put options.
Verified Answer
AF
Anastasia FredrikeJul 17, 2024
Final Answer :
C
Explanation :
Lower dividend-payout policies increase the value of a call option because the stock price is likely to be higher if dividends are not paid out. Conversely, they decrease the value of a put option because a higher stock price makes the put option less likely to be in the money.
Learning Objectives
- Scrutinize the impact that different conditions, such as dividend policies, interest rate environments, time to maturity, and stock price volatility, have on the pricing structure of call and put options.