ASM 7.3

[ziggy5959]

In the book solutions he adds in the dividend when calculating Cu, but the calculation doesn't give the answer and the errata says to omit the +4 so that the answer in the book is correct. If the errata is correct can someone explain to me why the dividend is not added in to calculate Cu.

[Abraham Weishaus]

See 7.3(iv). The dividend is paid before expiry of the option. Being a European option, the purchaser cannot elect to receive the stock cum-dividend!