Question

A call option on 100 shares of Generous Dynamics stock has an exercise price $120.0 per...

A call option on 100 shares of Generous Dynamics stock has an exercise price $120.0 per share. GD declares a stock dividend of 34.0 percent. What happens to the exercise price and the number of shares underlying the option?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

when the dividend is announced by General dynamics stock, it will mean that share prices will be adjusted for the dividend payments and share prices will be going down and it will also mean that call options will be adjusted for the strike price but overall exposure of the option will not be different and it will just be adjusting for the strike price in accordance with the current market price after the rate of dividend has been deducted from the overall stock price.

So, it can be said that exercise price of these call options will be coming down and number of shares outstanding can also adjust in accordance with the number of the strike price but the overall value of the exposure will be remaining the same.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A put option on 100 shares of Generous Dynamics stock has an exercise price $50.00 per...
A put option on 100 shares of Generous Dynamics stock has an exercise price $50.00 per share. GD declares 2 for 1 stock split. What happens to the exercise price and the number of shares underlying the option? The answer is: Number of shares increases to 200 and the exercise price is reduced to $25.00 Can someone explain why that is the answer?
A stock is currently selling for $60 per share. A call option with an exercise price...
A stock is currently selling for $60 per share. A call option with an exercise price of $65 sells for $3.71 and expires in three months. If the risk-free rate of interest is 2.9 percent per year, compounded continuously, what is the price of a put option with the same exercise price?
A stock is currently selling for $60 per share. A call option with an exercise price...
A stock is currently selling for $60 per share. A call option with an exercise price of $67 sells for $4.49 and expires in four months. If the risk-free rate of interest is 2.7 percent per year, compounded continuously, what is the price of a put option with the same exercise price?
A call option with an exercise price of $110 has six months to the expiration date....
A call option with an exercise price of $110 has six months to the expiration date. Currently, the stock is sold at a price of $120. At the expiration date, the underlying stock has two possible ending prices: $150 or $105. The risk-free rate of return is 8 percent per annum. Calculate the price of this call option using binomial option pricing model.
A call option has an exercise price of $40 per share. If you bought the option...
A call option has an exercise price of $40 per share. If you bought the option for $3, draw a graph of the payout on the option as a function of the stock price. Label the graph.
A stock is currently selling for $81 per share. A call option with an exercise price...
A stock is currently selling for $81 per share. A call option with an exercise price of $83 sells for $4.05 and expires in three months. If the risk-free rate of interest is 3 percent per year, compounded continuously, what is the price of a put option with the same exercise price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Put price $
A stock is currently selling for $74 per share. A call option with an exercise price...
A stock is currently selling for $74 per share. A call option with an exercise price of $79 sells for $3.70 and expires in three months. If the risk-free rate of interest is 3.4 percent per year, compounded continuously, what is the price of a put option with the same exercise price? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))   Put price $   
A trader has a call option contract to buy 100 shares of a stock for a...
A trader has a call option contract to buy 100 shares of a stock for a strike price of $40. What is the effect on the terms of the contract of: a) A $1 dividend being declared b) A $1 dividend being paid c) A 10-for-3 stock split d) A 15% stock dividend being paid
A call and put expire in 0.41 year and have an exercise price of $100. The...
A call and put expire in 0.41 year and have an exercise price of $100. The underlying stock is worth $90 and has a standard deviation of 0.25. The annual risk-free rate is 11 percent. The annual dividend yield (q) on the stock is 2%. The put option price from the three-period binomial model is: 8.67 9.467 9.207 7.593
A call and put expire in 0.41 year and have an exercise price of $100. The...
A call and put expire in 0.41 year and have an exercise price of $100. The underlying stock is worth $90 and has a standard deviation of 0.25. The annual risk-free rate is 11 percent. The annual dividend yield (q) on the stock is 2%. The put option price from the three-period binomial model is: 8.67 9.467 9.207 7.593
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT