If the stock makes a dividend payment before the expiration date then the put-call parity is:
A) Value of call = value of put + share price - present value (PV) of dividend -PV of exercise price
B) Value of call = value of put - share price + PV of dividend - PV of exercise price
C) Value of call = value of put + share price + PV of dividend + PV of exercise price
D) Value of call = value of put + share price + PV of dividend - PV of exercise price

Question

Quizplus · Accepted Answer

The put-call parity equation is: Value of Call + PV of Exercise Price = Value of Put + Share Price. 
However, if the stock pays a dividend before the expiration date, then the equation becomes: Value of Call + PV of Exercise Price = Value of Put + Share Price - PV of Dividend. 
So, rearranging this equation to solve for Value of Call, we get: Value of Call = Value of Put + Share Price - PV of Dividend - PV of Exercise Price (Option A).

If the Stock Makes a Dividend Payment Before the Expiration