CFA Practice Question

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CFA Practice Question

As the carry benefits rise, it becomes ______ likely that the put option will expire out of the money.
A. more
B. less
C. the same
Explanation: 1- N(d2) is the probability that a put option will expire in the money. The higher the carry benefits, the lower the value of N(d2); the put option becomes more likely to be in the money (less likely to be out of the money).

User Contributed Comments 2

User Comment
harrybay Can anyone put this in clearer terms?
akirchner1 A carry benefit would be like a dividend on a stock. When the dividend is paid out, it reduces the stock price which makes the put closer to being in the money.
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