The solution says that it is possible to calculate P(S1>320) using ths distribution of ln(S1/S0). Could someone please demonstrate how to so this.
It can be shown that in the world of Black-Scholes, the risk-neutral probability that ST > K (and hence a call would be exercised) is equal to Phi(d2), where d2 is as defined on p47 in the Tables. So, that is what you would need to calculate here. Likewise: 1 - Phi(d2) = Phi)-d2) is equal to the risk-neutral probability that ST < K and hence that a put would be exercised. Note also that in the Merton Model of credit risk, 1 - Phi(d2) is therefore equal to the risk-neutral probability that the company defaults on its ZCB. You're not told any of this explicitly in the Core Reading but it is extremely useful to know!
