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Assume that S(0) = 100, the current price of the stock, and that the ex dividend price is: S(1) = 80 with probability 1/8 90

Assume that S(0) = 100, the current price of the stock, and

that the ex dividend price is:

S(1) =

80 with probability 1/8

90 with probability 2/8

100 with probability 3/8

110 with probability 2/8

The company will pay out a constant dividend D (independent of the future

stock price). Compute D for which the expected return on stock would be 18%

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