Question: In addition to the five factors, dividends also affect the price of an option. The BlackScholes Option Pricing Model with dividends is: C=SedtN(d1)EeRtN(d2)C=SedtN(d1)EeRtN(d2) d1=[ln(S/E)+(Rd+2/2)t](t)d1=[ln(S/E)+(Rd+2/2)t](t) d2=d1td2=d1t

In addition to the five factors, dividends also affect the price of an option. The BlackScholes Option Pricing Model with dividends is:

C=SedtN(d1)EeRtN(d2)C=SedtN(d1)EeRtN(d2)

d1=[ln(S/E)+(Rd+2/2)t](t)d1=[ln(S/E)+(Rd+2/2)t](t)

d2=d1td2=d1t

All of the variables are the same as the BlackScholes model without dividends except for the variable d, which is the continuously compounded dividend yield on the stock.

A stock is currently priced at $88 per share, the standard deviation of its return is 44 percent per year, and the risk-free rate is 3 percent per year, compounded continuously. What is the price of a call option with a strike price of $84 and a maturity of six months if the stock has a dividend yield of 3 percent per year?

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