In the Black-Scholes model, as the stock's price increases, the values of N(d₁) and N(d₂) will ________ for a call and ________ for a put option. A) increase; decrease B) increase; increase C) decrease; increase D) decrease; decrease

Question

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As the stock's price increases, the value of d1 will increase for both call and put options, since stock price is in the numerator of the d1 calculation. N(d1) represents the probability of the option ending up in-the-money, so as d1 increases, N(d1) will also increase. 
However, for a call option, N(d2) represents the present value of the strike price discounted by the risk-free interest rate. As the stock's price increases, the probability of the option ending up in-the-money also increases, making the present value of the strike price less valuable. Therefore, N(d2) will decrease. 
For a put option, N(d2) represents the present value of the strike price discounted by the risk-free interest rate, but as the stock's price increases, the present value of the strike price becomes more valuable, since there is a higher probability of the option ending up in-the-money. Therefore, N(d2) will increase.

In the Black-Scholes Model, as the Stock's Price Increases, the Values