When the Stock Price Is 20 and the Present Value

question 12

Multiple Choice

When the stock price is 20 and the present value of dividends is 2,which of the following is the recommended way of constructing a tree?

• A) Draw a tree for an initial stock price of 20 and subtract the present value of future dividends at each node
• B) Draw a tree for an initial stock price of 22 and subtract the present value of future dividends at each node
• C) Draw a tree with an initial stock price of 18 and add the present value of future dividends at each node
• D) Draw a tree with an initial stock price of 18 and add 2 at each node

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