An American-style option with six months to maturity has a strike price of $42. The underlying stock now sells for $50. The call premium is $14.
a. If the company unexpectedly announces it will pay its first-ever dividend four months from today, you would expect that:
1. the call price would increase.
2. the call price would decrease.
3. the call/put price would not change.
4. the put price would decrease?
b. What is the intrinsic value of the call?
c. What is the time value of the call?
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