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

question 19

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 single dividend of 2.25 in three months,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)17.75
• B)20.75
• C)20.00
• D)20.80
• E)none of the above

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Definitions:

Competitive Markets

Markets characterized by many buyers and sellers where no single participant can significantly influence the price of goods or services.

Externalities

Effects of a transaction or activity on third parties who are not directly involved, which can be either beneficial (positive externalities) or harmful (negative externalities).

Property Rights

Legal rights defining the ownership and use of resources including land, intellectual property, and personal assets.

Public Good

A product or service that is provided without profit to all members of a society, either by the government or a private individual or organization.