A Binary Option Pays of $100 If a Stock Price

question 3

Multiple Choice

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?

• A) 99.25N(-0.1375)
• B) 99.25N(0.1375)
• C) 99.25N(-0.0625)
• D) 99.25N(0.0625)

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Definitions:

Equal Width Classes

A method in data binning where each class or bin has the same width, used in the construction of histograms and frequency distributions.

Mutually Exclusive Classes

Categories or groups that cannot occur simultaneously, implying that the occurrence of one event precludes the occurrence of another.

Line Graph

A line graph is a type of chart used to display information as a series of data points connected by straight line segments, typically used to visualize trends over time.

Data Values

Individual pieces of information or measurements collected in a study or used in an analysis.