When There Are Two Dividends on a Stock,Black's Approximation Sets

question 3

Multiple Choice

When there are two dividends on a stock,Black's approximation sets the value of an American call option equal to which of the following

• A) The value of a European option maturing just before the first dividend
• B) The value of a European option maturing just before the second (final) dividend
• C) The greater of the values in A and B
• D) The greater of the value in B and the value assuming no early exercise

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Definitions:

Marginal Cost

The increase in costs resulting from the manufacturing of one extra good or service.

Dominant Price Leader

A firm that has the largest market share within an industry and whose pricing decisions are often followed by other firms in the market.

Monopolist

An entity, individual, or company that is the sole supplier of a particular commodity or service in a market, often resulting in the power to control prices and market conditions.

Market Demand

The aggregate amount of a product or service that every customer in a market is prepared and able to buy at different price levels.