Assume the Black-Scholes framework. You are given: (i) The current price of a stock is 80. (ii)
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Assume the Black-Scholes framework. You are given:
(i) The current price of a stock is 80.
(ii) The stock’s volatility is 25%.
(iii) The stock pays dividends continuously at a rate proportional to its price.
(iv) The continuously compounded risk-free interest rate is 5%.
(v) The continuously compounded expected rate of return on the stock, α, is 8%.
(vi) The true probability that a 1-year at-the-money European put option on the stock will be exercised is 0.4681.
Calculate the current price of the put option in (vi).
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Given the BlackScholes framework and the provided information Current stock price S 80 Stocks volati...View the full answer
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