Recalculate the value of the Buffelhead call option (see question 5), assuming that the option is American

Question:

Recalculate the value of the Buffelhead call option (see question 5), assuming that the option is American and that at the end of the first six months the company pays a dividend of $25. (Thus the price at the end of the year is either double or half the ex-dividend price in month 6.) How would your answer change if the option were European?

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...
Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  answer-question

Principles of Corporate Finance

ISBN: 978-0072869460

7th edition

Authors: Richard A. Brealey, Stewart C. Myers

Question Posted: