Problem 4 Consider a stock with current price $60. You are given: • Dividends of $1 each will be paid every three months; the next dividend will be paid in 2 months. • σ = 0.3. ⚫ The continuously compounded risk-free interest rate is 4%. Use the Black-Scholes methodology to price a nine-month at-the-money European put option on the stock.
Problem 4 Consider a stock with current price $60. You are given: • Dividends of $1 each will be paid every three months; the next dividend will be paid in 2 months. • σ = 0.3. ⚫ The continuously compounded risk-free interest rate is 4%. Use the Black-Scholes methodology to price a nine-month at-the-money European put option on the stock.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Problem 4 Consider a stock with current price $60. You are given:
• Dividends of $1 each will be paid every three months; the next dividend will be paid
in 2 months.
• σ = 0.3.
⚫ The continuously compounded risk-free interest rate is 4%.
Use the Black-Scholes methodology to price a nine-month at-the-money European put option
on the stock.
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