The Current Price of a Stock Is $50

question 4

Multiple Choice

The current price of a stock is $50.This includes the value of a dividend of $2 that will be paid three months from now.In three months,the net of dividend stock price will rise by a factor of 1.2 or fall by a factor of 0.8.The risk-free rate of interest is 0.0834% per month (simple interest) .Using the technique of Schroder (1988) ,what is the price of a six-month American call option at a strike of $51?

• A)$3.62
• B)$4.12
• C)$4.62
• D)$5.12

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Definitions:

Labor Supply Decisions

The choices individuals make regarding how much labor to supply to the market, influenced by factors such as wages, working conditions, and personal preferences.

Pareto Optimal

A distribution of resources where it's infeasible to enhance the well-being of one individual without adversely affecting another.

Private Goods

Goods that are rivalrous and excludable, meaning consumption by one person diminishes availability for others, and access can be restricted.

Inelastic Demand

A market situation where the demand for a product does not change significantly with a change in price.