European cash-or-nothing call pays

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Reference no: EM131503030

A European cash-or-nothing call pays its holder a fixed amount F if the price at expiration time is larger than K and pays 0 otherwise. Find the risk-neutral valuation of such a call – one that expires in six month’s time and has F = 100 and K = 40 – if the present price of the security is 38, its volatility is .32, and the interest rate is 6%.

Reference no: EM131503030

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