Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Transcribed Image Text:The share price of Heavy Metal (HM) changes only once a month: Either it goes up by 22% or it falls by
17.1%. Its price now is $42.5. The interest rate is 1.2% per month. What is the value of a one-month
call option with an exercise price of $42.5? What is the option delta? 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? What is the value of a two-month call option with an exercise price
of $42? What is the option delta of the two-month call over the first one-month period?
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