Question: A binary option pays off 500 if a stock price

A binary option pays off $500 if a stock price is greater than $60 in three months. The current stock price is $61 and its volatility is 20%. The risk-free rate is 2% and the expected return on the stock is 8%. What is the value of the option? What is the real-world expected payoff?

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  • CreatedJuly 30, 2015
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