Which option price(s)will increase when the dividend yield increases?
A)both the call and put
B)call only
C)put only
D)neither the call nor the put
E)Answer cannot be determined from the information provided.

Question

Quizplus · Accepted Answer

When the dividend yield increases, the cost of carry increases for the holder of the underlying asset. This makes it more expensive to hold the asset and reduces the present value of the asset. For the holder of the put option, this is beneficial because it increases the value of the option. However, for the holder of the call option, this is detrimental because it decreases the value of the option. Therefore, only the put option price will increase when the dividend yield increases.

Which Option Price(s)will Increase When the Dividend Yield Increases