Suppose the stock discussed above pays dividends. Assume all parameters are the same. Consider these three forms

Question:

Suppose the stock discussed above pays dividends. Assume all parameters are the same. Consider these three forms of dividends paid by the firm.
(a) The stock pays a continuous, known stream of dividends at a rate of 4% per time.
(b) The stock pays 5% of the value of the stock at the third node, No other dividends are paid.
(c) The stock pays a $5 at the third node.
In each case determine if the option will he exercised early.

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...