XYZ Corp. will pay a $2 per share dividend in two months. Its stock price currently is $86 per share. A European call option on XYZ has an exercise price of $78 and 3-month time to expiration. The risk-free interest rate is 0.8% per month, and the stock's volatility (standard deviation) = 22% per month. Find the Black-Scholes value of the American call option. (Hint: Try defining one "period" as a month, rather than as a year, and think about the net-of-dividend value of each share.) (Round your answer to 2 decimal places.) Black-Scholes value of the option $ 7.12

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
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Problem 21-39
XYZ Corp. will pay a $2 per share dividend in two months. Its stock price currently is $86 per share. A European call option on XYZ
has an exercise price of $78 and 3-month time to expiration. The risk-free interest rate is 0.8% per month, and the stock's volatility
(standard deviation) -22% per month. Find the Black-Scholes value of the American call option. (Hint: Try defining one "period" as a
month, rather than as a year, and think about the net-of-dividend value of each share.) (Round your answer to 2 decimal places.)
Black-Scholes value of the option
7.12
Transcribed Image Text:Problem 21-39 XYZ Corp. will pay a $2 per share dividend in two months. Its stock price currently is $86 per share. A European call option on XYZ has an exercise price of $78 and 3-month time to expiration. The risk-free interest rate is 0.8% per month, and the stock's volatility (standard deviation) -22% per month. Find the Black-Scholes value of the American call option. (Hint: Try defining one "period" as a month, rather than as a year, and think about the net-of-dividend value of each share.) (Round your answer to 2 decimal places.) Black-Scholes value of the option 7.12
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