If the Stock Pays a Specific Dollar Dividend and the Stock

question 19

Multiple Choice

If the stock pays a specific dollar dividend and the stock price,to include the dividend,follows the binomial up and down factors,which of the following will happen?

• A)the binomial tree will recombine
• B)the binomial tree will not recombine
• C)the option will be mispriced
• D)an arbitrage profit will not be possible
• E)none of the above

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