Answer-first summary for fast verification
Answer: $1.30
Using European put-call parity with dividends: \[ C + K e^{-rT} + PV(D) = P + S \] So, \[ PV(D) = P + S - C - K e^{-rT} \] Substitute the values: \[ PV(D) = 5.36 + 44.00 - 8.95 - 40 e^{-0.03 \times 0.75} \] \[ 40 e^{-0.0225} \approx 39.11 \] \[ PV(D) = 49.36 - 48.06 = 1.30 \] Therefore, the present value of expected dividends is **$1.30**.
Author: Manit Arora
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Question-726.1. The price of a dividend-paying stock is $44.00 while the risk-free rate is 3.0%. Consider a European call option and a European put option with identical strike prices, K = $40.00, and identical times to expiration of nine months, T = 0.75 years. The call has a price of $8.95 and the put has a price of $5.36. What is the present value of the dividends expected during the life of the option?
A
Zero
B
$0.19
C
$1.30
D
$4.75
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