The Current Price of a Stock Is $100

question 6

Multiple Choice

The current price of a stock is $100.Consider the Black-Scholes model price of a six-month call option at strike $101,given an interest rate of 2% and a dividend rate of 1%? The volatility is 25%.What is the risk-neutral probability of the option ending up in the money?

• A)0.45
• B)0.48
• C)0.49
• D)0.50

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Definitions:

Variance

A measure of the dispersion or spread of a set of data points, reflecting how much the data points differ from the mean.

Binomial Experiment

A statistical experiment that fits the binomial distribution; characterized by having a fixed number of trials, distinct outcomes (success or failure), independence, and constant probability of success.

Variance

A measure of the dispersion or spread of a set of values, indicating how much they differ from the average of the set.

Sample Size

The number of observations or data points collected in a sample from a population for analysis.