Consider a 6 month American call strike at $40 on a stock that pays two 50...

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Consider a 6 month American call strike at $40 on a stock that pays two 50...

Consider a 6 month American call strike at $40 on a stock that pays two 50 cents dividends, going ex-div in 2 months’ and in 5 months’ time. The continuously compounded risk free rate is 9% pa.

(a) Should the option be exercised just prior to the 1st ex-div date? What about the 2nd ex-div date?

(b) How would your answer to (a) change if the strike price is $18? Is it necessary to check the inequality on both ex-div dates? Why or why not?

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Answer 1

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Answer of call option can excercise his The holder at any right time on (or before expiry date/day of contract in american ca

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Consider a 6 month American call strike at $40 on a stock that pays two 50...

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