Question: Let S = $49, s = 20%, and r = 6.5% (continuously compounded). The stock is set to pay a single dividend of $1.40 nine

Let S = $49, s = 20%, and r = 6.5% (continuously compounded). The stock is set to pay a single dividend of $1.40 nine 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 $50-strike European call option on the stock.

Answers:

a. $3.98

Correctb. $4.19

c. $3.37

d. $2.80

e. $4.95

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