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 cash dividends are paid on equity only.
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

Dividends reduce the price of the underlying stock, which decreases the value of a call option on that stock.

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