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14.Which of the following is true when dividends are expected?

A.Put-call parity does not hold

B.The basic put-call parity formula can be adjusted by subtracting the present value of expected dividends from the stock price

C.The basic put-call parity formula can be adjusted by adding the present value of expected dividends to the stock price

D.The basic put-call parity formula can be adjusted by subtracting the dividend yield from the interest rate

A.Put-call parity does not hold

B.The basic put-call parity formula can be adjusted by subtracting the present value of expected dividends from the stock price

C.The basic put-call parity formula can be adjusted by adding the present value of expected dividends to the stock price

D.The basic put-call parity formula can be adjusted by subtracting the dividend yield from the interest rate

Answer: B

Put call parity still holds for European options providing the present value of the dividends is subtracted from the stock price.

Put call parity still holds for European options providing the present value of the dividends is subtracted from the stock price.

Flashcard info:

Author: CoboCards-User

Main topic: Finance & Investment

Topic: Derivatives

Published: 27.10.2015