PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Textbook Question
Chapter 21, Problem 9PS
Option delta*
- a. Can the delta of a call option be greater than 1.0? Explain.
- b. Can it be less than zero?
- c. How does the delta of a call change if the stock price rises?
- d. How does it change if the risk of the stock increases?
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Students have asked these similar questions
Describe the effect of a change in each of the following factors on the value of a calloption:1. Stock price2. Exercise price3. Option life4. Risk-free rate
please answer both. If a stock's fair return increases, what will happen to the stock's value?
A.
It will increase.
B.
It will not change.
C.
It will decrease.
If the market risk premium rises, what will happen to the stock's price?
A.
It will not change.
B.
It will increase.
C.
It will decrease.
Which of the following describes delta?
O The ratio of the option price to the stock price
None of these
O The ratio of a change in the option price to the corresponding change in the stock price
The ratio of a change in the stock price to the corresponding change in the option price
O The ratio of the stock price to the option price
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Chapter 21 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 21 - Binomial model Over the coming year, Ragworts...Ch. 21 - Binomial model Imagine that Amazons stock price...Ch. 21 - Prob. 3PSCh. 21 - Binomial model Suppose a stock price can go up by...Ch. 21 - Prob. 6PSCh. 21 - Two-step binomial model Suppose that you have an...Ch. 21 - Prob. 8PSCh. 21 - Option delta a. Can the delta of a call option be...Ch. 21 - Option delta Suppose you construct an option hedge...Ch. 21 - BlackScholes model Use the BlackScholes formula to...
Ch. 21 - Option risk A call option is always riskier than...Ch. 21 - Option risk a. In Section 21-3, we calculated the...Ch. 21 - Prob. 16PSCh. 21 - Prob. 18PSCh. 21 - American options The price of Moria Mining stock...Ch. 21 - American options Suppose that you own an American...Ch. 21 - American options Recalculate the value of the...Ch. 21 - American options The current price of the stock of...Ch. 21 - American options Other things equal, which of...Ch. 21 - Option exercise Is it better to exercise a call...Ch. 21 - Option delta Use the put-call parity formula (see...Ch. 21 - Option delta Show how the option delta changes as...Ch. 21 - Dividends Your company has just awarded you a...Ch. 21 - Option risk Calculate and compare the risk (betas)...Ch. 21 - Option risk In Section 21-1, we used a simple...Ch. 21 - Prob. 30PS
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- If the stock price falls and the call price rises, then what has happened to the call option’s implied volatility?arrow_forwardWhat impact does each of the followingparameters have on the value of a call option?(1) Current stock pricearrow_forwardIn the Black-Scholes option pricing model, the value of a call is inversely related to: a. the risk-free interest stock b. the volatility of the stock c. its time to expiration date d. its stock price e. its strike pricearrow_forward
- If the stock price increases, the price of a put option on that stock ________ and that of a call option _________. decreases, increases decreases, decreases increases, decreases increases, increasesarrow_forward1.Which of the following is assumed by the Black-Scholes-Merton model? A.The return from the stock in a short period of time is lognormal B.The stock price at a future time is lognormal C.The stock price at a future time is normal D.None of the abovearrow_forwardIn a binomial tree created to value an option on a stock, what is the expected return on the option? O Zero O The return required by the market O The risk-free rate O It depends on the volatility ALarrow_forward
- 6. Explain why an option’s time value is greatest when the stock price is near the exercise price and why it nearly disappears when the option is deep in- or out-of-the- money.arrow_forwardWhich of the following strategy would you adopt if you expect the fall in prices of a stock? A. Buy a call B. Sell a call C. Sell a put D. Buy a futurearrow_forwardwhich one is correct? QUESTION 6 Given a portfolio of stocks, the envelope curve containing the set of best possible combinations is known as the a. efficient frontier. b. utility curve. c. last frontier. d. efficient portfolio. e. capital asset pricing model.arrow_forward
- Problem 4d: State whether the following statements are true or false. In each case, provide a brief explanation. d. In a binomial world, if a stock is more likely to go up in price than to go down, an increase in volatility would increase the price of a call option and reduce the price of a put option. Note that a static position is a position that is chosen initially and not rebalanced through time.arrow_forwardUnder which of the following circumstances would you want to buy a stock? Select one: a. The HPR is greater than zero. b. A stock's holding period return is greater than the CAPM return c. A stock's CAPM return is greater than its holding period return d. The stock's price is higher than its valuearrow_forwardWhy do call options with exercise prices greater than the price of the underlying stock sell for positive prices?arrow_forward
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