Suppose the S&P 500 is at 900, and a one-year European call option with a strike price

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Suppose the S&P 500 is at 900, and a one-year European call option with a strike price of $400 has a negative time value. If the interest rate is 5%, what can you conclude about the dividend yield of the S&P 500? (Assume all dividends are paid at the end of the year.)

Strike Price
In finance, the strike price of an option is the fixed price at which the owner of the option can buy, or sell, the underlying security or commodity.
Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
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Corporate Finance

ISBN: 978-0133097894

3rd edition

Authors: Jonathan Berk and Peter DeMarzo

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