A stock is currently trading at $S _ { 0 } = 26.15$ . It is not expected to pay dividends over the next year. You price a one-month call option on the stock with a strike of $K = 25$ using the Black-Scholes model and find the following numbers: $$\begin{array} { r l r l }
d _ { 1 } & = 0.717 & d _ { 2 } & = 0.645 \
N \left( d _ { 1 } \right) & = 0.763 & N \left( d _ { 2 } \right) & = 0.740
\end{array}$$ Given this information, the risk-neutral probability of the call finishing in the money is
A) 71.7%
B) 64.5%
C) 76.3%
D) 74.0%

Question

A stock is currently trading at $S _ { 0 } = 26.15$ . It is not expected to pay dividends over the next year. You price a one-month call option on the stock with a strike of $K = 25$ using the Black-Scholes model and find the following numbers: $$\begin{array} { r l r l } 
d _ { 1 } & = 0.717 & d _ { 2 } & = 0.645 \
N \left( d _ { 1 } \right) & = 0.763 & N \left( d _ { 2 } \right) & = 0.740
\end{array}$$ Given this information, the risk-neutral probability of the call finishing in the money is
A) 71.7%
B) 64.5%
C) 76.3%
D) 74.0%

Quizplus · Accepted Answer

The risk-neutral probability of the call option finishing in the money is given by $N(d_2) = 0.740$ or 74.0%.

A Stock Is Currently Trading At S0=26.15S _ { 0 } = 26.15S0​=26.15

A Stock Is Currently Trading At $S _ { 0 } = 26.15$