The hedge ratio of an option is also called the

This preview shows page 77 - 81 out of 84 pages.

We have textbook solutions for you!
The document you are viewing contains questions related to this textbook.
Financial Management: Theory & Practice
The document you are viewing contains questions related to this textbook.
Chapter 8 / Exercise 8-3
Financial Management: Theory & Practice
Brigham/Ehrhardt
Expert Verified
80.The hedge ratio of an option is also called the options A. alpha.B. beta.C. sigma.D.delta.E. rho.The two terms mean the same thing.AACSB: AnalyticBlooms: RememberDifficulty: BasicTopic: Option Valuation81.The intrinsic value of an at-the-money put option isequal to A. the stock price minus the exercise price.B. the put premium.C.zero.D. the exercise price minus the stock price.E. None of the optionsThe intrinsic value of an at-the-money put option contract is zero.AACSB: AnalyticBlooms: RememberDifficulty: Intermediate21-77
We have textbook solutions for you!
The document you are viewing contains questions related to this textbook.
Financial Management: Theory & Practice
The document you are viewing contains questions related to this textbook.
Chapter 8 / Exercise 8-3
Financial Management: Theory & Practice
Brigham/Ehrhardt
Expert Verified
Topic: Option Valuation82.An American-style call option with six months to maturity has a strike price of $42. The underlying stock now sells for $50. The call premium is $14.What is the intrinsic value of the call? A. $12B. $10C.$8D. $2350 - 42 = $8.AACSB: AnalyticBlooms: ApplyDifficulty: BasicTopic: Option Valuation83.An American-style call option with six months to maturity has a strike price of $42. The underlying stock now sells for $50. The call premium is $14.What is the time value of the call? A. $8B. $12C.$6D. $4E. Cannot be determined without more information14 - (50 - 42) = $6.AACSB: AnalyticBlooms: ApplyDifficulty: IntermediateTopic: Option Valuation
84.An American-style call option with six months to maturity has a strike price of $42. The underlying stock now sells for $50. The call premium is $14.If the company unexpectedly announces it will payits first-ever dividend four months from today, you would expect that A. the call price would increase.B.the call price would decrease.C. the call price would not change.D. the put price would decrease.E. the put price would not change.As an approximation, subtract the present value ofthe dividend from the stock price and recompute the Black-Scholes value with this adjusted stock price. Since the stock price is lower, the option value will be lower.AACSB: AnalyticBlooms: ApplyDifficulty: IntermediateTopic: Option Valuation85.The intrinsic value of an out-of-the-money put option is equal to A. the stock price minus the exercise price.B. the put premium.C.zero.D. the exercise price minus the stock price.The intrinsic value of an out-of-the-money put option contract is zero.21-79
AACSB: AnalyticBlooms: RememberDifficulty: IntermediateTopic: Option Valuation86.Vegais defined as A. the change in the vachange in the price oB. the change in the value of the underlying asset for a dollar changC. the percentage change in the value of an option for a 1% changeunderlying asset.D. the change in the volatility of the underlying stock price.E.the sensitivity of an option's price to changes in volatility.An option's hedge ratio (delta) is the change in theprice of an option for $1 increase in the stock price. Vegais defined as the sensitivity of an option's price to changes in volatility.

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture