A non-dividend-paying stock has a price is $20
Question # 00513475
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Updated on: 04/18/2017 04:30 AM Due on: 04/18/2017
Question:A non-dividend-paying stock has a price is $20 with volatility of 20%. The continuously compounded risk-free rate is 6%.
- a) Use the Black-Sholes-Merton model to find the price of a 12-month European call option on the stock
- with a strike price of $20.
- b) What would be the price of a 12-month American call option with the same strike price if the stock were
- expected to pay a $2 dividend in 4 months and another $2 dividend in 10 months?
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Solution: A non-dividend-paying stock has a price is $20