Question

19. A call has 6 months left before expiration and a put (on the same stock) has 2 months left before expiration. If the company unexpectedly announces it will pay its first-ever dividend 3 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. e. the put price would increase.

Answer 1

Answer:

a. the call price would decrease.

Explanation:

it is important you note that a company pays dividend (share of profit) to shareholders sometimes with a motive of attracting new investors.

Thus, we may likely expect the call price to decrease as a result of the sudden announcement.