Consider an option on dividend-paying stock

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Consider an option on a dividend-paying stock when the stock price is $60, the exercise price is $58, the risk-free interest rate is 3% per annum, the volatility is 25% per annum, and the time to maturity is three months. The stock will pay a dividend of $1 in two months. Using the Black-Scholes-Merton model,

a. What is the price of the option if it is a European call?

b. What is the price of the option if it is a European put?

c. Verify that put–call parity holds.

Reference no: EM131324568

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