Assume a stock price of S(0)= $80.00,r = 0.05,σ = 0.35,and dividend = 0.01.What is the price of a claim that pays S⁻²/³? Use formula 20.29.

Name: Assume a stock price of S(0)= $80.00,r = 0.05,σ = 0.35,and dividend = 0.01.What is the price of a claim that pays S⁻²/³? Use formula 20.29.
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Question

Quizplus · Accepted Answer

The price of the claim is calculated using the formula for the expected value of the claim discounted at the risk-free rate. Given the parameters, the calculation results in a price of approximately $0.05.

Assume a Stock Price of S(0)= $80