How high can the dividends be without the american option be

Assignment Help Finance Basics

Reference no: EM13801156

Consider an American call option when the stock price is $19, the exercise price is $21, the time to maturity is 6 months, the volatility is 25% per annum, and the risk-free interest rate is 10% per annum. Two equal dividends are expected during the life of the option with ex-dividend dates at the end of 2 months and 5 months. Assume the dividends are 45 cents. How high can the dividends be without the American option being worth more than the corresponding European option?

Reference no: EM13801156

Questions Cloud

How do the different types of the accounting inventory metho : How do the different types of the Accounting Inventory Methods (FIFO, LIFO, or Weighted-Average) operate? How does a firm go about choosing which Accounting Inventory Method works?

Did interest rates increase or decrease-transaction costs : Boyd Company sold a futures contract (one) on Treasury bonds that specified a price of 93-00. When the position was closed out, the price of the Treasury bond futures contract was 94-20. Did interest rates increase or decrease? How do you know? What ..

The conventional payback criterion : You are considering two investment options. In option A, you have to invest $5,000 now and $1,000 three years from now. In option B, you have to invest $3,500 now, $1,500 a year from now and $1,000 three years from now. In both options, you receive f..

Calculate the dead weight loss-prohibitive tariff per unit : Suppose the market for wine in the U.S. is characterized by: Calculate the deadweight loss if the U.S. imposes a prohibitive tariff per unit of imported wine.

How high can the dividends be without the american option be : Consider an American call option when the stock price is $19, the exercise price is $21, the time to maturity is 6 months, the volatility is 25% per annum, and the risk-free interest rate is 10% per annum. Two equal dividends are expected during the ..

Economic profit different from their accounting profit : Bob and Jane decide to open their own business selling ergonomically correct office furniture that Jane has designed. Assume they operate this business from leased office space near their home. Is Bob & Jane's economic profit different from their acc..

Which of the following statements about healthcare providers : Question 1. Which of the following statements about healthcare providers is incorrect? a. Traditional outpatient settings include clinics, medical practices, hospital outpatient departments, and emergency rooms. b. Long-term care includes both health..

Organizational behavior-strong social-physical work context : Organizational behavior-A strong social and physical work context means that environment is supportive. Give real examples of how this works.

Distinguish between microeconomics and macroeconomics : Why is economics a science of choices? Explain the kinds of choices confronting workers and employers in labor markets. Distinguish between microeconomics and macroeconomics.

User Account

All Pages