Standard Deviation - Compounding - Maturity Date - Probability Distribution - Mathematics Assignment Help

Assignment Task:

Standard Deviation - Compounding - Maturity Date - Probability Distribution - Mathematics Assignment Help 

Valuing Stock Options: The Black-Scholes-Merton Model

Questions

1. The stock price has an expected return of 16% and a volatility of 35%. The current price is $38.
2.  What is the probability that a European call option on the stock with an exercise price of $40 and a maturity date in six months will be exercised?
3. What is the probability that a European put option on the stock with the same exercise price and maturity will be exercised?
4. A portfolio manager announces that the average of the returns realized in each of the last 10 years is 20% per annum. In what respect is this statement misleading?
5. Describe the payoff from this derivative.
6. Use risk-neutral valuation to calculate the price of the derivative at time zero.

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