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:

Units-Of-Activity

A depreciation method that allocates expense based on the actual usage or activity level of the asset.

Depreciation Method

A systematic approach used to allocate the cost of a tangible asset over its useful life, such as straight-line or declining balance methods.

Units-Of-Activity

A depreciation method that allocates expenses based on the actual usage or activity levels of an asset.

Salvage Value

A projection of an asset's value at the end of its period of functionality.