The putcall parity condition is altered when dividends are paid. The dividend-adjusted putcall parity formula is S

Question:

The put–call parity condition is altered when dividends are paid. The dividend-adjusted put–call parity formula is

S × e−dt + P = E × e−Rt + C

Where d is again the continuously compounded dividend yield.

a. What effect do you think the dividend yield will have on the price of a put option? Explain.

b. From Problem 23.33(b), what is the price of a put option with the same strike price and time to expiration as the call option?

Strike Price
In finance, the strike price of an option is the fixed price at which the owner of the option can buy, or sell, the underlying security or commodity. Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...