Ima Greedy, the CFO of Financial Saving Techniques has been granted options on 200,000 shares. The stock is currently trading at $22 a share and the options are at the money. The volatility of the stock 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(d₂). A) 0.5688 B) 0.5278 C) 0.6085 D) 0.7085 E) 0.7142

Question

Quizplus · Accepted Answer

The correct answer is calculated using the Black-Scholes model formula for N(d1), where d1 = [ln(S/K) + (r + σ^2/2)T] / (σ√T). Given that the options are at the money, S (stock price) equals K (strike price), making ln(S/K) = 0. With the volatility (σ) at 0.20, the risk-free rate (r) at 4% or 0.04, and the time to maturity (T) at 3 years, we can calculate d1 and then find N(d1) using a standard normal distribution table or calculator. The closest match to the possible outcomes given the inputs is 0.5688, indicating that the calculation aligns with option A.

Ima Greedy, the CFO of Financial Saving Techniques Has Been