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A Binary Option Pays of $100 If a Stock Price

question 3

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A binary option pays of $100 if a stock price is greater than its current value in three months. The risk-free rate is 3% and the volatility is 40%. Which of the following is its value?


Definitions:

Interest-Cost Of Funds Curve

The Interest-Cost of Funds Curve represents the relationship between the cost of borrowing and the amount of funds borrowed in financial markets.

Optimal R&D

Optimal R&D refers to the most efficient level of investment in research and development activities that maximizes the return on investment for a company or economy.

Perfectly Elastic

Describes a situation in market demand or supply where quantity demanded or supplied changes infinitely in response to even a tiny change in price.

Optimal R&D

The most efficient level of investment in research and development activities where marginal costs equal marginal benefits, maximizing net benefits.

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