- CFA Exams
- CFA Level I Exam
- Topic 7. Derivatives
- Learning Module 34. Valuation of Contingent Claims
- Subject 4. Black-Scholes-Merton Option Valuation Model

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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(d

_{2}) is the probability that a put option will expire in the money. The higher the carry benefits, the lower the value of N(d

_{2}); the put option becomes more likely to be in the money (less likely to be out of the money).

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**User Contributed Comments**
2

User |
Comment |
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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. |