How is the price of a European call option impacted by a $2.00 dividend being paid immediately before expiration of a 6 month option if interest rates are 5.0%?
A) Decreased by $1.95
B) Decreased by $2.00
C) Increased by $1.95
D) Increased by $2.00

Question

Quizplus · Accepted Answer

The price of a European call option decreases by the present value of the dividend. The present value of a $2.00 dividend at a 5% interest rate over 6 months is approximately $1.95.

How Is the Price of a European Call Option Impacted