Lower dividend-payout policies have a __________ impact on the value of the call and a __________ impact on the value of the put compared to higher dividend-payout policies.
A)negative; negative
B)positive; positive
C)positive; negative
D)negative; positive

Question

Quizplus · Accepted Answer

Lower dividend-payout policies mean that the company is retaining more earnings to reinvest back into the company, which increases the expected future value of the company, resulting in higher stock prices. Therefore, lower dividend-payout policies have a positive impact on the value of the call option. On the other hand, lower dividends reduce the potential value of the put option, as investors are less likely to exercise their option and sell the stock at a higher price, as there is a lower likelihood of a significant decline in price due to the company reinvesting earnings. Therefore, lower dividend-payout policies have a negative impact on the value of the put option.

Lower Dividend-Payout Policies Have a __________ Impact on the Value