Hi

Can you please advise if my answers are correct?

Question 1: ABL shares are currently trading at a price of $27, while HHT shares are trading at a price of $10.05. The risk-free rate is 1.27% per year.

Using the information above, perform each of the following tasks:

b) If HHT shares have a 40% chance of increasing by 16% and a 60% chance of decreasing by 16% by the date of the option expiration, what will be the expected return on HHT shares and the expected return on a protective put position? For simplicity you may assume the put has a price of $1 and has the same strike-price as listed above.

Answer: -0.33788

c) Compute the Delta (number of shares) that if you also short a call on HHT will a risk-free portfolio. Assume the call is European and that the strike-price is $9.246

How can we solve this?

e) Identify the name of the strategy that has one long stock and one long put. Any and all options may be assumed to have the same strike-price in answering this question.

Answer: Straddle

f) Find the Black-Scholes price of the call on ABL with a strike price of $21.01 if there is 6 months until the call expires and the annual standard deviation of the stock price is 20%.

Answer: $5.06

Thank you