Question: Consider a put option on a dividend-paying stock when the stock price is $51, the exercise price is $53, the risk-free interest rate is 12%

Consider a put option on a dividend-paying stock when the stock price is $51, the exercise price is $53, the risk-free interest rate is 12% per annum, the volatility is 25% per annum, and the time to maturity is five months. The stock is due to go ex-dividend in 3 months. The expected dividend is 200 cents. Calculate the option price. Answer to 3 dps.

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

The following information is for Punta Company for July: Factory overhead costs were applied to jobs at the predetermined rate of $42.50 per labor hour. Job S incurred 6,175 labor hours; Job T used...

Compute the price of a European put option on a non-dividend-paying stock when the stock price is Sothe strike price is Kthe risk-free interest rate is r per annum the volatility is sigma per annum,...

The stock of Logrones Motors is currently trading at 120 and is expected to increase or decrease by 20% in each of the next two three-month periods. What is the current price of an American put...

2. The stock of Logrones Motors is currently trading at 120 and is expected to increase or decrease by 20% in each of the next two three-month periods. What is the current price of an American put...

Problem 2. (40 points) Black-Sholes-Merton formula for valuing stock options: C = S,N(d) - PV(K)N(d) p = -S,N-d) + PV(K)N(-d) dx = d; -OT In (PVCK) OVT di = OVT + 2 a) [10 points) Consider...

[10 points] Consider continuous-time model and find the value (price/premium) of three-month European put option on a non-dividend stock if current stock price of $100, the strike price is $98, the...

1.Consider investing in three different bonds. All maturity values are $100. All interest rates are expressed per annum with semi-annual compounding and coupons are paid semi-annually as in the US...

The following data is available: a dividend-paying stock with a stock price S=40.50 and strike price K=37. The risk-free interest rate is r=4.5%, the time to maturity is 12 months, and volatility is...

The following data is available: a dividend-paying stock with a stock price S=32 and strike price K=38. The risk-free interest rate is r=3.5%, the time to maturity is 12 months, and volatility is...

Question 1 Assume that CAPM is a good representation of the risk-return relationship. You are holding a portfolio of stocks. The portfolio's standard deviation is 40% and its correlation with "M" is...

Consider a put option on a non-dividend-paying stock when the stock price is $30, the exercise price is $29, the risk-free rate is 5%, the volatility is 25% per annum, and the time to maturity is...

Explain how a pension fund might use a long hedge with stock-index futures

Use the equation for the IS curve shown in Section 1.2.3 to answer the following questions: (a) If we assume that 0

In the context of knowledge management systems, q , are rule - based systems that encode human knowledge in the form A O decision - making systems B intelligent systems C expert systems D expert...

Which of the following are problems with identifying users of ABC? Multiple select question. ABC means different things to different organizations. Organizations will announce the discontinuance of...

Design a survey feedback intervention program, and use this to promote retention of key organizational personnel. page 445

Discuss the significance of process issues such as communication in compensation management. page 474

Discuss how pay influences individual employees, and describe three theories that explain the effect of compensation on individuals. page 498