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Consider an option on a non-dividend-paying stock when the stock price is $48, the exercise price...

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Finance

Consider an option on a non-dividend-paying stock when the stockprice is $48, the exercise price is $46, the risk-free interestrate is 6% per annum, the volatility is 20% per annum, and time tomaturity is four months. (a) What is the price of the option if itis a European call? (b) What is the price of the option if it is aEuropean put? (c) What is the price of the option if it is anAmerican call? (d) How would the result of a) change if a dividendof $1 is expected in two months? How would the result of a) changeif a dividend of $2 is expected in six months?

Answer & Explanation Solved by verified expert
4.3 Ratings (658 Votes)
Call option C and put option P prices arecalculated using the following formulas where Nx is the standard normal cumulativedistribution functionThe formulas for    See Answer
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