In addition to the five factors, dividends also affect the price of an option.

The Black-Scholes Option Pricing Model with dividends is: C=SedtN(d1)EeRtN(d2) d1=[ln(S/E)+(Rd+2/2)t](t) d2=d1t All of the variables are the same as the Black-Scholes model without dividends except for the variable d, which is the continuously compounded dividend yield on the stock.

A stock is currently priced at $83 per share, the standard deviation of its return is 58 percent per year, and the risk-free rate is 4 percent per year, compounded continuously. What is the price of a call option with a strike price of $79 and a maturity of six months if the stock has a dividend yield of 2 percent per year?