The call option on a dividend paying equity compared to a non-dividend paying equity is:
A)more valuable because of the extra dividend payment.
B)equal in value because cash dividends are paid on equity only.
C)less valuable because after cash dividends are paid out the value of equity decreases.
D)less valuable if the dividend paying equity is in-the-money while the non-dividend paying
Equity if out-of-the-money.
E)None of the above.

Question

Quizplus · Accepted Answer

Call options on dividend-paying equities are generally less valuable than those on non-dividend paying equities because the stock price typically drops by the amount of the dividend on the ex-dividend date, reducing the value of the call option.

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