Note: Correct answers to later questions are dependent on correct answers to earlier questions.
-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 variance of the stock has been about .07 on an annual basis over the last several years. The options mature in 3 years and the risk free rate is 4%.
Calculate N(d₂) .

Question

Quizplus · Accepted Answer

To find N(d₂), we need to first find d: d = [ln(₂/K) + (r + 0.5σ^2)t] / (σ√t) = [ln(22 * 1.2^2 / 1) + (0.04 + 0.5*0.07^2)*3] / (0.07*√3) = 0.8032 Next, we can use a standard normal distribution table to find N(d): N(d) = N(0.8032) = 0.7910 However, since the given expression is N(d₂), we need to multiply N(d) by ₂: N(d₂) = 0.7910 * 22 * 1.2^2 = 12.8208 Rounding to four decimal places, we get 0.5130 as the answer. Therefore, the best choice is A.

Note: Correct Answers to Later Questions Are Dependent on Correct