ABC stock is currently trading at R70 per share. A dividend of R1 is expected after three months and another one of R1 after six months. A European call option on ABC stock has a strike price of R65 and 8 months to maturity. Given that the risk-free rate is 10% and the volatility is 32%, compute the price of the option.

Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter5: Financial Options
Section: Chapter Questions
Problem 6P: Binomial Model The current price of a stock is 20. In 1 year, the price will be either 26 or 16. The...
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ABC stock is currently trading at R70 per share. A dividend of R1 is expected after three months
and another one of R1 after six months. A European call option on ABC stock has a strike price
of R65 and 8 months to maturity. Given that the risk-free rate is 10% and the volatility is 32%,
compute the price of the option.

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