A binary option pays off $500 if a stock price is greater than $60 in three months.

Question:

A binary option pays off $500 if a stock price is greater than $60 in three months. The current stock price is $61 and its volatility is 20%. The risk-free rate is 2% and the on the stock is 8%. What is the value of the option? What is the real-world expected payoff? Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these...