This preview shows page 1. Sign up to view the full content.
Unformatted text preview: 4. What is the value of the option? Solution: 1. $30 or $0. 2. The hedge ratio is = 3012070 = . 60 So, buy .60 shares of stock and write one option. 3. This portfolio has a payo of $42 (in either scenario). The present value is 42/1.05 = 40. 4. The value of the call option must be .6*80  40 = $8....
View
Full
Document
 Fall '07
 DONCHEZ,RO
 Corporate Finance

Click to edit the document details