Ima Greedy, the CFO of Financial Saving Techniques has been granted options on 200,000 shares. The equity is currently trading at £22 a share and the options are at the money.The volatility of the
Equity has been about .20 on an annual basis over the last several years.The option mature in 3
Years and the risk free rate is 4%.
What is d2?
A).0121
B).0252
C)-.2324
D).0452
E).0525

Question

Quizplus · Accepted Answer

To calculate $d_2$ in the Black-Scholes model, we use the formula: $$d_2 = d_1 - \sigma\sqrt{T}$$ where $d_1$ is calculated using the formula: $$d_1 = \frac{\ln(S/K) + (r + \sigma^2/2)T}{\sigma\sqrt{T}}$$ Given that the options are at the money, $S = K = £22$, $r = 0.04$, $\sigma = 0.20$, and $T = 3$ years. Plugging these values into the formula for $d_1$ and subsequently $d_2$, we find that $d_2$ is approximately $-0.2324$, making option C the correct answer.

Ima Greedy, the CFO of Financial Saving Techniques Has Been