An American call option with a share price of $5.40, an exercise price of $6.00, time to maturity of 6 months, volatility of 25% pa and a risk free rate of 6% pa. 

There is a 20 cents dividend that is going ex-div in 5 months’ time. Use Black’s approximation to value the option. Assume there are no tax or information effects associated with the dividend.

Answer rating: 100% (QA)

Under Blacks approximation current stock price ... View the full answer