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

---

Definitions:

Calibration Curve

A plot of accuracy against confidence judgments. The more the curve approaches a 45-degree line, the better the “calibration” or “fit” between accuracy and confidence.

Participants' Confidence

The level of belief individuals participating in an experiment or study have in their responses or judgments.

Deductive Reasoning

A logical process where a conclusion is based on the concordance of multiple premises that are generally assumed to be true.

Underconfidence

A cognitive bias in which individuals underestimate their knowledge, abilities, or performance.