Question: Let S = $43, s = 28%, and r = 7.5% (continuously compounded). The stock is set to pay a single dividend of $1.60 three

Let S = $43, s = 28%, and r = 7.5% (continuously compounded). The stock is set to pay a single dividend of $1.60 three months from today, with no further dividends expected this year. Use the Black-Scholes model (adjusted for the dividend) to compute the value of a one-year $40-strike European put option on the stock.

ANSWER: $2.54

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