Calculate the adjusted price of the call option

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The shares of DCB Bank are currently valued at $22 and they have a volatility of 29% pa. The risk free rate is 5% pa. You many find this table showing the values of the standard normal cumulative distribution function useful.

a) Calculate the price of a European call option on these shares, with strike price $24 and a term to expiration of 8 years. Give your answer in dollars and cents to the nearest cent.

Price of call option = $

DCB bank have just announced that a dividend of $0.64 will be paid in 3 years time and an additional dividend of $1.19 will be paid in 5 years time.

b) Taking this new information into account, calculate the adjusted price of the call option. Give your answer in dollars and cents to the nearest cent and assume that the time between the ex-dividend date and actual payment of the dividend has a negligible effect.

Adjusted price of call option = $

Reference no: EM133056846

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