Question: Consider a 5-year equity-linked note that pays one share of XYZ at maturity. The price of XYZ today is $100, and XYZ is expected to

Consider a 5-year equity-linked note that pays one share of XYZ at maturity. The price of XYZ today is $100, and XYZ is expected to pay its annual of $1 at the end of this year, increasing by $0.50 each year. The fifth will be paid the day before the note matures. The appropriate for dividends is a continuously compounded risk-free rate of 6%.
Suppose that the day after the note is issued, XYZ announces a permanent increase of $0.25. What happens to the price of the equity-linked note?

TABLE 15.5 Table for problems Quarter Oil forward price (S) 21.0 2. 208 205 . 20.19.9 19.8 Zero-coupon bond 85 0.9701 0.9546 0.9388 0.923 0.9075 0.8919 0.8763 price (S)

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