Question: A DECS contract pays two shares if ST 27 875

A DECS contract pays two shares if ST < 27.875, 1.667 shares if the price is above ST > 33.45, and $27.875 and $55.75 otherwise. The quarterly dividend is $0.87. Value this DECS assuming that S = $26.70, σ = 35%, r = 9%, and T = 3.3 and that the underlying stock pays a quarterly dividend of $0.10.
The next two problems are based on the M&I stock purchase contract.

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  • CreatedAugust 12, 2015
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