A binary option pays off $150 if a stock price is greater than $40 in three months

Finance Apr 02, 2021

A binary option pays off $150 if a stock price is greater than $40 in three months. The
current stock price is $35 and its volatility is 35%. The risk-free rate is 4% and the expected return on the stock is 10%.
1 What is the value of the option?
2 What is the real-world probability that the payoff will be received?

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