Investors in a certain stock demand to be compensated for risk. The current stock price is 100.
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Investors in a certain stock demand to be compensated for risk. The current stock price is 100. The stock pays dividends at a rate proportional to its price. The dividend yield is 2%. The continuously compounded risk-free interest rate is 5%. Assume there are no transaction costs. Let X represent the expected value of the stock price 2 years from today. Assume it is known that X is a whole number. Determine which of the following statements is true about X.
(A) The only possible value of X is 105.
(B) The largest possible value of X is 106.
(C) The smallest possible value of X is 107.
(D) The largest possible value of X is 110.
(E) The smallest possible value of X is 111.
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