Which of the Following Is a Way of Extending the Black-Scholes-Merton

question 13

Multiple Choice

Which of the following is a way of extending the Black-Scholes-Merton formula to value a European call option on a stock paying a single dividend?

• A) Reduce the maturity of the option so that it equals the time of the dividend
• B) Subtract the dividend from the stock price
• C) Add the dividend to the stock price
• D) Subtract the present value of the dividend from the stock price

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Definitions:

Standardized Product

A product that is uniform in quality and characteristics, produced in large volumes, and by many different firms.

Determinant

A mathematical concept referring to a scalar value that can be calculated from the elements of a square matrix, often used to solve systems of linear equations.

Shortage

A situation where the demand for a product or service exceeds the available supply at a particular price.

Supply Curve

A graphical representation showing the relationship between the price of a good or service and the quantity of it that suppliers are willing to provide at that price.