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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Definitions:

Buy Back

Buy back refers to the process by which a company repurchases its own shares from the marketplace, reducing the number of outstanding shares.

Resell

The act of selling something previously bought, often for a profit or at a different price point.

Electronic Bill Pay

A service that allows individuals to pay bills online through a website or app, streamlining the payment process and reducing the need for paper bills.

Switching Costs

Expenses or barriers that a consumer or business faces when changing suppliers, brands, or products.