Question
A firm's stock sells at $50. There are no dividend payouts for the next three months. The risk-free rate is 4% per annum. The volatility
A firm's stock sells at $50. There are no dividend payouts for the next three months. The risk-free rate is 4% per annum. The volatility is estimated at 30% a year. Assume the stock price is lognormally distributed.
a) What price should a 3-month European call option with a strike price of $55 sell for?
b) What price should a 3-month European put option with a strike price of $55 sell for?
c) What will your answers to a) and b) change if there are ex-dividend dates in one month and two months, and the dividend on each ex-dividend date is expected to be $1?
d) What will your answers to a) and b) change if the stock pays continuous dividends with a dividend yield rate of 2% per year?
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Financial Analysis with Microsoft Excel
Authors: Timothy R. Mayes, Todd M. Shank
7th edition
1285432274, 978-1305535596, 1305535596, 978-1285432274
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