ABC stock has a share price of $150 today. All rates of interest are 3% per annum on a continuously…
ABC stock has a share price of $150 today. All rates of interest are 3% per annum on a continuously compounded basis. A one-year European call option on one share of stock struck at $147 is worth $15. Finally, ABC is scheduled to pay the following dividends per share over the next year: a dividend of $3.0 per share in three months and a dividend of $3.0 per share in nine months.
- a) Derive the forward price of the stock for delivery in one year.
- b) What is the value of an otherwise identical European put option?
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