Put/Call Parity With Dividends involved, practice, different, 2011

Kapie

Looking to know how parity is evaluated when dividends are involved, or more specifically, do we have to know it?

I don't recall seeing this in the text or Schweser, but I ran into it on a practice test. The computations are quite a bit different and more complex from what we're accustomed.

Thanks!

- Robert



Edited 2 time(s). Last edit at Wednesday, May 4, 2011 at 11:59PM by Robert A.

WarrenB1

I just studied this tonight, CFAI text, and do not recall seeing it inclusive of dividends. I wouldn't sweat it. I saw you other post and I am going to assume that this is from the Boston CFAI Society as well.

Houjichasan

when dividend is paid - as of ex-dividend date, Stock price reduces by the amount of the dividend.

So instead of using S -- use (S-D)

that is the only change you would have to make.

CP

MiniMe7

Make sure you PV the Dividend too. S-PVD. Same for the Option on a bond except its the PV of the coupon