Xyz corp will pay a 2 per share dividend in 2 months its, Ask an Expert

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XYZ Corp. will pay a $2 per share dividend in 2 months. Its stock price currently is $84 per share. A call option on XYZ has an exercise price of $78 and 3-month time to expiration. The risk-free interest rate is 0.6% per month, and the stock’s volatility (standard deviation) = 20% per month. Find the pseudo-American option value. (Hint: Try defining one “period” as a month, rather than as a year.)

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