Assume the Black-Scholes framework. You are given: (i) The current price of a stock is 80. (ii)
Question:
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 6%.
(v) The expected 1-year stock price is 84.2069.
Calculate the expected 1-year stock price, given that a 1-year at-the-money (when issued)
European put option on the stock expires in-the-money.
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