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    Black Scholes option price

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    A share of ARB stock sells for $75 and has a standard deviation of return equal to 20% per year. The current risk-free rate is 9% and the stock pays two dividends:
    1) a $2 dividend just prior to the option's expiration day, which is 91 days from now (one quarter of a year) and 2) a $2 dividend 182 days from now.

    A) Calculate the Black-Scholes value for a European-style call option with an exercise price of $70.

    B) Calculate the price of a 91-day European-style put option on ARB stock having the same exercise price.

    C) How would a change in dividend policy impact the call option's value?

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    Solution Summary

    Calculates the Black-Scholes value for a European-style call option and a European-style put option for which the underlying asset is a dividend paying stock.