Question
An American option to buy PBA Ltd shares for $8.40 in exactly three months is priced at 48c. The next dividend of 50c will be
An American option to buy PBA Ltd shares for $8.40 in exactly three months is priced at 48c. The next dividend of 50c will be paid in six months, and PBAs shares are currently trading for $8.55. Interest rates are 8% p.a. compounded quarterly. i) What are the lower and upper bounds on the price of an American option to sell PBAs shares for $8.40 in three months?
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School Finance A Policy Perspective
Authors: Allan Odden, Lawrence Picus
5th Edition
0078110289, 978-0078110283
