QUESTION 2

2.The investor owns 1,000 shares of stock but anticipates its price may decline. To reduce the risk of loss, how many call options must be sold if the hedge ratio is 0.7 (be aware that options are sold in 100 blocks) ?

		a, Sell approximately 1000 options
		b.Sell approximately 100 options
		c. Sell about 14 options
		d. sell approximately 70 options

QUESTION 1

1. a A call option is the right to buy stock at $25 a share. According to the Black/Scholes option valuation model, what is the value of the call, if the price of the stock is $25, the interest rate is 8 percent, the option expires in three months, and the standard deviation of the stock's return is 0.20 (20 percent)?