Question: Question : Rf = 0 and underlying at 100. Annual stdev of $60. 28 trading days left for the option before expiration. Use 252 trading

Question : Rf = 0 and underlying at 100. Annual stdev of $60. 28 trading days left for the option before expiration. Use 252 trading days for one year.

Q1. PUT option with strike of $110.00.

Q1a. What is the probability for PUT to expire in the money ?

Q1b. What is the average price of the underlying at expiration conditional on PUT expiring ITM ?

Q1c. Based on Q1a, and Q1b, how much should the 110 strike PUT be priced at ?

Q1d. Compare result of Q1d with 1 step pricing with put price formula. How much of values above is time value, and how much is intrinsic value?

List detailed steps including EXCEL function used, if any.

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