medium · FRM Part 1 Financial Markets and Products
A stock is at $50, r=5%, T=1. Discrete dividend of 2 in 6 months.
If a trader uses the formula F_0 = S_0e^rT - D (subtracting the face value of the dividend at maturity), how does their result compare to the correct no-arbitrage price?
- The result is too high
- The result is too low
- The error depends on the volatility of the stock
- The result is correct
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