Q9 to Q10 below is based on the following information. Current Stock Price (S0) 80 Strike/Exercise Price (K) 75 Time to Maturity (T) of 1 year 1 Risk-free Rate (r) 0.04 Volatility 40% N(d1) 0.6777 N(d2) 0.5245 N(d1) 0.3223 N(d2) 0.4755 Q9. Based on the above information and the Black-Scholes-Merton model, which of the following is the correct Delta () of the European Put option? (A) 0.6777 (positive) (B) 0.5245 (positive) (C) -0.6777 (negative) (D) -0.3223 (negative) Answer: _______________ Q10. Based on the above information and the Black-Scholes-Merton model, which of the following is closest to the correct no-arbitrage Put Option price? (A) 8.4852 (B) 16.4259 (C) 11.3392 (D) -16.4259 Answer: _______________
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Q9 to Q10 below is based on the following information.
Current Stock Price (S0) 80
Strike/Exercise Price (K) 75
Time to Maturity (T) of 1 year 1
Risk-free Rate (r) 0.04
Volatility 40%
N(d1) 0.6777
N(d2) 0.5245
N(d1) 0.3223
N(d2) 0.4755
Q9. Based on the above information and the Black-Scholes-Merton model, which of the
following is the correct Delta () of the European Put option?
(A) 0.6777 (positive)
(B) 0.5245 (positive)
(C) -0.6777 (negative)
(D) -0.3223 (negative)
Answer: _______________
Q10. Based on the above information and the Black-Scholes-Merton model, which of
the following is closest to the correct no-arbitrage Put Option price?
(A) 8.4852
(B) 16.4259
(C) 11.3392
(D) -16.4259
Answer: _______________
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