The call option on a dividend-paying stock compared to a comparable non-dividend paying stock is:
A)more valuable because of the dividend payments.
B)equal in value.
C)less valuable because cash dividends lower the stock price.
D)equal to the cost of the non-dividend paying stock option.
E)either equal to or greater than the value of the non-dividend paying stock option.

Question

Quizplus · Accepted Answer

Call options on dividend-paying stocks are generally less valuable than those on non-dividend paying stocks because dividends decrease the stock price when they are paid out, reducing the value of the call option.

The Call Option on a Dividend-Paying Stock Compared to a Comparable