Using a binomial pricing model,what is the impact on the price of a call option if the company increases the dividend paid to shareholders? The call option price:
A) Will drop
B) Will increase
C) Will remain constant
D) Impact cannot be determined

Question

Quizplus · Accepted Answer

When the company increases the dividend paid to shareholders, the call option price will drop because the increase in the dividend reduces the value of the underlying stock, which in turn reduces the value of the call option.

Using a Binomial Pricing Model,what Is the Impact on the Price