Question Assume the Black-Scholes framework for a stock. You are given: i) The current stock price is 40 ii) The stock p

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Question Assume The Black Scholes Framework For A Stock You Are Given I The Current Stock Price Is 40 Ii The Stock P 1 (41.78 KiB) Viewed 98 times

Question Assume the Black-Scholes framework for a stock. You are given: i) The current stock price is 40 ii) The stock pays no dividends iii) The expected rate of appreciation is 16% iv) The stock' s volatility is 30% v) The Black-Scholes price of a 6-month 42-strike European call on the stock is 3.22 vi) The continuously compounded risk-free rate is 8% You just bought a 6-month straddle which pays the absolute difference between the stock price after 6 months and 42. Calculate the probability of having a positive profit after 6 months. Possible Answers A Less than 0.35 B At least 0.35 but less than 0.40 c At least 0.40 but less than 0.45 D At least 0.45 but less than 0.50 E At least 0.50