Suppose that you consider holding a stock currently valued at 50 for two years, and each year
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Question:
Suppose that you consider holding a stock currently valued at 50 for two years, and each year it either goes up by 30% or down by 20%. The company has already announced its dividend policy: it will pay a $15 dividend immediately before the stock price goes above $70. You hold a Bermudan call option with strike price K = $55, which expires in two years. You can exercise your option today, in one year from now, or in two years. Should you exercise the option early?
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