Smith Luna

10/26/2023 · Elementary School

An option to buy a stock is priced at \( \$ 100 \). If the stock closes above 30 on May 15 , the option will be worth \( \$ 500 \). If if closes below 20 , the option will be worth nothing, and if it closes between 20 and 30 (inclusively), the option will be worth \( \$ 100 \). A trader thinks there is a \( 40 \% \) chance that the stock will close in the 20 -30 range, a \( 30 \% \) chance that it will close above 30 , and a \( 30 \% \) chance that it will fall below 20 on May 15 . Complete parts (a) through (c). a) How much does she expect to gain? \( \$ 90 \) (Round to the nearest dollar as needed.) b) What is the standard deviation of her gain? (Round to the nearest dollar as needed.)