Question

Consider a 1-year option with exercise price $110 on a stock with annual standard deviation 10%. The T-bill rate is 3% per year. Find N(d1) for stock prices $105, $110, and $115.

If you could explain the difference between D and N(d1) that would be great. I think that is where im getting stuck

Answer #1

Risk free rate(r) =3%

Standard Deviation (s)=10%

At stock price(S) =105

Formula for D1 =(Ln(S/K)+(r+s^{2}/2)*t)/(s*t^{0.5})
=(ln(105/100)+(3%^2+10%^2/2)*1)/(10%*1^0.5)=0.5469

N(d1) can be found out using excel formula =NORMSDIST(0.5469)
=0.7078

N(d1) can also be found from cumulative distribution table where d1
is used in place of z vale

At stock price(S) =110

Formula for D1 =(Ln(S/K)+(r+s^{2}/2)*t)/(s*t^{0.5})
=(ln(110/100)+(3%^2+10%^2/2)*1)/(10%*1^0.5)=1.0121

N(d1) can be found out using excel formula =NORMSDIST(1.0121)
=0.8443

At stock price(S) =115

Formula for D1 =(Ln(S/K)+(r+s^{2}/2)*t)/(s*t^{0.5})
=(ln(115/100)+(3%^2+10%^2/2)*1)/(10%*1^0.5)=1.0121

N(d1) can be found out using excel formula =NORMSDIST(1.4566)
=0.9274

Consider a 1-year option with exercise price $115 on a stock
with annual standard deviation 10%. The T-bill rate is 2% per year.
Find N(d1) for stock prices (a) $110, (b) $115, and (c) $120. (Do
not round intermediate calculations. Round your answers to 4
decimal places.)
S
N(d1)
$110
$115
$120

Consider a 1-year option with exercise price $65 on a stock with
annual standard deviation 15%. The T-bill rate is 3% per year. Find
N(d1) for stock prices (a)
$60, (b) $65, and (c) $70. (Do not round
intermediate calculations. Round your answers to 4 decimal
places.)
need detailed explanation please... hard to understand
S
N(d1)
$60
0.3913selected answer incorrect
$65
0.6084selected answer correct
$70
0.7791selected answer correct

A non-dividend paying stock sells for $110. A call on the stock
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deviation of the stock’s returns is 25% (0.25), what is the price
of a European call option according to the Black-Scholes-Merton
option pricing model.

A non-dividend paying stock sells for $110. A call on the stock
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deviation of the stock’s returns is 25% (0.25), what is the price
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13.86
3.24
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Assume that the price of Bayou corporation stock today is $100.
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Currently, a call option on Bayou stock is available with an
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Assume that the price of Bayou Corporation stock today is $100.
Furthermore, it is estimated that Bayou stock will be selling for
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A call option with an exercise price of $50 expires in six
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d2
Calculate the value of d1
0.3
0.7214
-0.7214
0.4967
calculate the value of d2
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(1) (2 pts.) Please use binomial option pricing model to derive
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?0=100 and exercise price ?=110. The T-bill rate is ?=10% per year
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Please show:
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