The Following Information Is Given About Options on the Stock $\sigma$

question 40

Multiple Choice

The following information is given about options on the stock of a certain company.
S₀ = 23 X = 20
r_c = 0.09 T = 0.5
$\sigma$ ² = 0.15
No dividends are expected.
Use this information to answer questions 1 through 8.
-If we now assume that the stock pays a dividend at a known constant rate of 3.5 percent,what stock price should we use in the model? (Due to differences in rounding your calculations may be slightly different."none of the above" should be selected only if your answer is different by more than 10 cents. )

• A)22.60
• B)19.65
• C)23.00
• D)21.99
• E)none of the above

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Definitions:

Incidental Benefit

A non-intended advantage or favor a party receives from a contract made between other parties.

Mortgage Payments

Regular payments made to a lender, typically composed of principal and interest, for the loan taken out to purchase property.

Original Lender

The financial institution or lender that originally provided the loan or credit to a borrower.

Insurance Policy

A contract between an insurer and the insured, outlining the terms under which the insurer agrees to compensate the insured for specific losses.