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:

Nuremberg Chronicle

A richly illustrated book chronicling the history of the world from creation to the late 15th century, published in Nuremberg in 1493.

Printed Illustrated Book

A book that contains text and illustrations, where both elements are produced through a printing process, typically for mass distribution.

Les Très Riches Heures

A famous and lavishly decorated book of hours (a collection of prayers to be said at the canonical hours), painted by the Limbourg brothers in the early 15th century.

Duc de Berry

A French nobleman and patron of the arts in the 14th and 15th centuries, best known for commissioning the richly illustrated manuscript, the Très Riches Heures.