An American-style call option with six months to maturity has a strike price of $42.The underlying stock now sells for $50.The call premium is $14. If the company unexpectedly announces it will pay its first-ever dividend four months from today, you would expect that
A)the call price would increase.
B)the call price would decrease.
C)the call price would not change.
D)the put price would decrease.

Question

Quizplus · Accepted Answer

When a company announces it will pay dividends, the stock price typically decreases by the amount of the dividend on the ex-dividend date, making the call option less valuable.

An American-Style Call Option with Six Months to Maturity Has