Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The current stock price of a company is $68 and the stock is expected to have a dividend yield 3% per year. The instantaneous risk

The current stock price of a company is $68 and the stock is expected to have a dividend yield 3% per year. The instantaneous risk free rate of return is 3.5%. The instantaneous standard deviation of its stock is 35%. You wish to purchase options on this stock with an exercise price of $72 and an expiration date 9 months from now. Using the Black-Scholes Option Pricing Model to price the call option, its hedge ratio (delta) is __________ which is the number of stocks required to hedge against the price risk of holding one option.

A.

-0.5098

B.

-0.0246

C.

0.4902

D.

0.3715

E.

-0.3278

The current stock price of a company is $68 and the stock is expected to have a dividend yield 3% per year. The instantaneous risk free rate of return is 3.5%. The instantaneous standard deviation of its stock is 35%. You wish to purchase options on this stock with an exercise price of $72 and an expiration date 9 months from now. Using the Black-Scholes Option Pricing Model, the put option should be worth __________ today.

A.

$10.18

B.

$11.55

C.

$8.76

D.

$12.63

E.

$6.53

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Entrepreneurial Finance

Authors: M. J. Alhabeeb

1st Edition

1118691512, 978-1118691519

More Books

Students also viewed these Finance questions

Question

How is the NDAA used to shape defense policies indirectly?

Answered: 1 week ago

Question

Create a workflow analysis.

Answered: 1 week ago