value: 10.00 points XYZ Corp. will pay a $2 per share dividend in 2 months. Its

Question

value: 10.00 points XYZ Corp. will pay a $2 per share dividend in 2 months. Its stock price currently is $72 per share. A call option on XYZ has an exercise price of $65 and 3-month time to expiration. The risk-free interest rate is 0.3% per month, and the stock's volatility (standard deviation)-12% per month. Find the pseudo-American option value. (Hint: Try defining one "period" as a month, rather than as a year.) (Round your answer to 2 decimal places. Omit the "$" sign in your response.) Pseudo-American option value References eBook & Resources Worksheet Difficulty: 2 Intermediate

Explanation / Answer

Basic Model Pseudo-American (No Dividend) With Dividend* Call Value $14.0910 $8.4510 Call Delta (hedge ratio) 0.988 1.000

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