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%.
Calculate N(d1).
A).5054
B).6508
C).7062
D).7047
E).8096

Question

Quizplus · Accepted Answer

Using the Black-Scholes formula, we can calculate d1:

d1 = [ln(S0/K) + (r + 0.5*σ^2)T] / (σ√T)
where:
S0 = stock price = £22
K = strike price = £22
r = risk-free rate = 4%
σ = volatility = 0.20
T = time to maturity = 3 years

Plugging in the numbers, we get:

d1 = [ln(22/22) + (0.04 + 0.5*0.20^2)*3] / (0.20*√3)
d1 = 0.7062

Therefore, the answer is C.

Ima Greedy, the CFO of Financial Saving Techniques Has Been