Estimate the probability that the exchange rate in one year

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An exchange rate is currently $1.50. The volatility of the exchange rate is quoted as 15%. The risk free interest rate in dollars is 5% while the risk free interest rate in units of the foreign currency is 1%. Both rates are continuously compounded. Using the probability distribution used in the Black-Scholes model, estimate the probability that the exchange rate in one year will be (a) less than or equal to $1.25, (b) between $1.25 and $1.75, and (c) greater than $1.75.

Reference no: EM131989590

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