The price of Moria Mining stock is $100. During each of the next two six-month periods the
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The price of Moria Mining stock is $100. During each of the next two six-month periods the price may either rise by 25% or fall by 20% (equivalent to a standard deviation of 31.5% a year). At month 6 the company will pay a dividend of $20. The interest rate is 10% per six-month period. What is the value of a one-year American call option with an exercise price of $80? Now recalculate the option value, assuming that the dividend is equal to 20% of the with-dividend stock price.
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
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Principles of Corporate Finance
ISBN: 978-0077404895
10th Edition
Authors: Richard A. Brealey, Stewart C. Myers, Franklin Allen
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