Question

# Consider a call option on a stock, the stock price is \$29, the strike price is...

Consider a call option on a stock, the stock price is \$29, the strike price is \$30, the continuously risk-free interest rate is 5% per annum, the volatility is 20% per annum and the time to maturity is 0.25.

(i) What is the price of the option? (6 points)

(ii) What is the price of the option if it is a put? (6 points)

(iii) What is the price of the call option if a dividend of \$2 is expected in 60 days? (8 points)

(i) Price of call option (as in cell H1 of the excel image below) = \$0.88

(ii) Price of the put option (as in cell E14 of the excel image below) = \$1.51

(iii) Price of the call option if a dividend of \$2 is expected in 60 days = Price of call option - present value of dividend = \$0.88 - 2e-0.05*60/360 = -\$1.10

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