Financial Economics: Option Value Example

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Financial Economics: Option Value Example
MHLANGA, Analyst, Zimbabwe

A share of ARB stock sells for 75% with sd 20% p.a. Risk free rate 9% and stock pays 2 dividends:
1) $2 dividend prior to options expiration date (91days from now) and
2) $2 dividend 182 days from now.
A. Find Black-Scholes value for European-style call option with exercise value of $70.
B. Calculate a 91-day European style put option on ARB stock with same exercise price.
C. How would a change in dividend policy impact the call options value?



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