7 A binary option pays off $165 if a stock price is greater than $65 in three months. The current stock price is $50 and its volatility is 40%. The risk-free rate is 4% and the expected return on the stock is 10%. Note that some of the subsequent values were assumed and not calculated. a) The risk-neutral probability of the payoffs (d2) is _____________. b) Assume that d2 was calculated as - 1.4250 (minus 1.4250), use the tables to determine N(-d2), use interpolation. The probability is therefore =____________ c) What will the value of the option be if N(-d2) were determined to be 0.1072? The value of the option is___________