Question: For a stock, you are given that: i) The current stock price is 45 ii) The stock is going to pay a dividend of 1.2

For a stock, you are given that: i) The current stock

For a stock, you are given that: i) The current stock price is 45 ii) The stock is going to pay a dividend of 1.2 after 3 months. This is the only dividend to be paid in the coming 6 months. iii) A 6-month 42-strike European put option on the stock has a premium of 0.36 iv) The continuosly compounded risk-free interest rate is 4% Consider a 6-month 42-strike American call option on the stock. Is it optimal to excerise that call option now? Possible Answers A Yes, because the sum of implicit put protection and interest on strike is greater than the present value of dividends B No, because the sum of implicit put protection and interest on strike is greater than the present value of dividends C Yes, because the sum of implicit put protection and interest on strike is smaller than the present value of dividends D No, because the sum of implicit put protection and interest on strike is smaller than the present value of dividends E Cannot be determined

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