Question
For Stock S and Stock R, you are given: i. The current price of Stock S is 50. Stock S pays dividends continuously at a
For Stock S and Stock R, you are given: i. The current price of Stock S is 50. Stock S pays dividends continuously at a rate proportional to its price. The dividend yield is 2%. ii. The current price of Stock R is 40. Stock R pays a dividend of $ X in 3 months and another dividend of $ 2X in 6 months. iii. A European option gives its owner the right to exchange a share of Stock S for two shares of Stock R at the end of 9 months. The value of this option is $35. iv. A European option gives its owner the right to exchange two shares of Stock R for a share of Stock S at the end of 9 months. The value of this option is $8.96. v. The continuously compounded risk-free interest rate is 9%. Calculate X
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