# Assume that the riskless rate of interest is 4.5% and that the stock price has a volatility of 30%. Given

###### Question:

Assume that the riskless rate of interest is 4.5% and that the stock price has a volatility of 30%. Given a current stock price of $100 and the fact that the stock does not pay any dividend: a) What is the probability that a European put option on the stock with an exercise price of$90 and a maturity date in one year will be exercised? Hint: You need to compute the probability that the stock price at maturity will be less than or equal to $90. b) What is the probability that a European call option on the stock with an exercise price of$110 and a maturity date in one year will be exercised?

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