The Current Price of a Stock Is $50

question 25

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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