Suppose the underlying stock pays a dividend before the expiration of options on that stock. This will:
I.increase the value of a call option;
II.increase the value of a put option;
III.decrease the value of a call option;
IV.decrease the value of a put option
A)I and II only
B)III and IV only
C)I and IV only
D)II and III only

Question

Quizplus · Accepted Answer

When a stock pays a dividend, its price typically decreases by the amount of the dividend, which decreases the value of call options (III) and increases the value of put options (II).

Suppose the Underlying Stock Pays a Dividend Before the Expiration