Walmart's Dividend Increase

Quantitative Finance Level 3

In 2011, Walmart declared a annual dividend increase of 21% from $1.21 to $1.46. If you are long a call that expires before the dividend (with no stock position), would you make or lose money?

Assume that option strikes are not adjusted. Assume that the share price has not adjusted yet.

Image credit: The Walmart logo is trademark of Walmart

Lose money, the call is now worth less as the forward price is lower No difference, the dividend doesn't affect this option No difference, the exchange will refund the difference Make money, the call is now worth more as the share price increased.

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Calvin Lin by Calvin Lin

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