What is the option delta

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The stock price of Heavy Metal (HM) changes only once a month: either it goes up by 20% or it falls by 16.7%. Its price now is $40. The interest rate is 1% per month.

a. What is the value of a one-month call option with an exercise price of $40? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. What is the option delta? (Do not round intermediate calculations. Round your answer to 3 decimal places.)

c. The payoffs of the call option can be replicated by buying shares of stock and borrowing. What amount should be invested in stock and what amount must be borrowed? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Investment amount $

Loan amount $

d. What is the value of a two-month call option with an exercise price of $40? (Do not round intermediate calculations. Round your answer to 1 decimal place.)

e. What is the option delta of the two-month call over the first one-month period?

Reference no: EM131996539

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