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The spot price of the stock is $30. The volatility of the stock is 20% p.a. The continuous compounded risk-free rate is 5% p.a. i.

The spot price of the stock is $30. The volatility of the stock is 20% p.a. The continuous compounded risk-free rate is 5% p.a.
i. Calculate the value of a European call option to buy this stock at $28 in 3 months if the underlying stock pays no dividend.
ii. Calculate the value of a European call option to buy this stock at $28 in 3 months if the underlying stock pays a continuous dividend yield at 2% p.a.
iii. Explain the relationship between dividend yield and European call and put options.

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