What is the option delta, The stock price of Heavy Metal

What is the option delta

Assignment Help Financial Management

Reference no: EM131996539

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

Questions Cloud

What must the market risk of the stock be : If Treasury bills yield 5% and investors believe that the stock offers a satisfactory expected return, what must the market risk of the stock be?

Average daily sales : What is the probability that Mr Wood's average daily sales will be between 16 and 26 business suits?

Construct a replicating portfolio : A stock price is currently $40. It is known that at the end of one month it will be either $42 or $38. The risk free interest rate is zero.

Properties of least square estimator for linear regression : a) What are important principles of least square estimation for the linear regression

What is the option delta : 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.

Suppose we have the durbin-watson statistic : Suppose we have the Durbin-Watson statistic is equal to 3.0 from the regression residual, Does this result indicate that error terms are independent?

What is the capitalization of the market portfolio : The share prices for stocks A and B are $15 and $5, respectively. What is the capitalization of the market portfolio?

Probability that the budgeted amount : How much should be budgeted for weekly repairs, cleaning and maintenance so that the probability that the budgeted amount will be exceeded in a given week.

Calculate the stocks expected return and standard deviation : If both possibilities are equally likely, calculate the stock's expected return and standard deviation.

User Account

All Pages