XYZ Corp. will pay a $2 per share dividend in two months. Its stock price currently is
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Question:
XYZ Corp. will pay a $2 per share dividend in two months. Its stock price currently is $68 per share. A call option on XYZ has an exercise price of $62 and 3-month time to expiration. The risk-free interest rate is 0.9% per month, and the stock's volatility (standard deviation) = 10% per month. Find the Black-Scholes value of the American call option. (Hint: Try defining one "period" as a month, rather than as a year, and think about the net-of-dividend value of each share.)
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