The current stock price of a company is $68 and the stock is expected to have a

ID: 2717814 • Letter: T

Question

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.

Explanation / Answer

Hedge ratio delta for call option is 0.4789

S= 68 t= 9 months k= 72 r= 0.035 N= 0.35

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The current stock price of a company is $68 and the stock is expected to have a

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