Put/Call Parity With Dividends

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!

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.

yes, both are BSAS questions from their 2009 and 2010 mocks. The LOS’ between 2010 and 2011 have not changed, so I don’t know where they’re coming up with this. Conceptually, it is odd that dividends aren’t discussed in the reading on P/C parity, since every other instance of equity derivatives discusses its impact. I

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.

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

(deleted), see other thread on '11 Mock

wouldnt you need to add any divideds to the put price?