The Current Price of a Stock Is $100

question 19

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:

Operating Cycle

The process by which a company spends cash, generates revenues, and receives cash from customers.

Stockholders' Equity

The stake in a corporation's assets left over after all debts are cleared, signifying an ownership interest.

Liabilities

Financial obligations or debts that a company owes to others.

Assets

Resources owned by a business that are expected to bring future benefits.