A European Option on a Stock with Known Dollar Dividend

question 12

Multiple Choice

A European option on a stock with known dollar dividend is valued by setting the stock price variable equal to the stock price minus the present value of the dividend in the Black-Scholes-Merton formula. A second price can be obtained using the tree building procedure in the chapter. Which of the following is true when a very large number of time steps are used in the tree?

• A) The first price is higher than the second price
• B) The first price is lower than the second price
• C) The first price is sometimes higher and sometimes lower than the second price
• D) The two prices are almost exactly the same

---

Definitions:

Deviance Results

Outcomes or consequences that stem from behaviors or actions that violate societal norms.

Non-Deviant Associations

Relationships or connections with groups or individuals that conform to societal norms and laws, avoiding behaviors considered deviant.

Differential Association Theory

Holds that people learn to value deviant or nondeviant lifestyles depending on whether their social environment leads them to associate more with deviants or nondeviants.

Deviant Lifestyle

A way of living that deviates from the societal norms and is often viewed negatively by the mainstream society.