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How does adding a dividend rate influence the price of a call option and why?

How does adding a dividend rate influence the price of a call option and why?

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Expert Solution

Dividend rate will be affecting the price of call option because when the dividend will be paid,it would be leading to decrease in the the value of underlying asset in the market and it will mean that the call options will be proactively discounting the effect of dividend in advance and they will be decreasing the overall value of the call option in advance so when there will be an estimation of the dividend payment by the company then the shareholders are efficient enough in the market in order to adjust with the the value of call option on the downside in advance.

jeff jeffy answered 2 years ago
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