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Please explain why the answer is A. 8. According to the Black-Scholes-Merton model,...

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Accounting

imagePlease explain why the answer is A.

8. According to the Black-Scholes-Merton model, if, for a particular call option, N(x1) and N(x2) are both close to 0 , then which of the following is most true (A) The call is almost worthless (B) The call will be exercised almost certainly (C) The call price is close to SK (D) The call is worth less than SK Solution: (A). From the B-S-M formula we have C0=S0eTN(x1)KerTN(d2). Substituting in N(x1)=N(x2)=0 implies C=0.)

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