Stock Y is currently selling for $35. You believe that, one year from now, Stock Y will sell for either $65 (up-state) or $25 (down-state). The yield on a 1-year risk-free zero coupon bond is currently 2.5%. You have a European call option with a 1-year expiration date and an exercise price of $40. If you where to create a strategy that replicates this option, how many shares would you need to buy (shortsell if negative)? In other words, what is the call option delta?
Stock Y is currently selling for $35. You believe that, one year from now, Stock Y will sell for either $65 (up-state) or $25 (down-state). The yield on a 1-year risk-free zero coupon bond is currently 2.5%. You have a European call option with a 1-year expiration date and an exercise price of $40. If you where to create a strategy that replicates this option, how many shares would you need to buy (shortsell if negative)? In other words, what is the call option delta?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Stock Y is currently selling for $35. You believe that, one year from now, Stock Y will sell for either $65 (up-state) or $25 (down-state). The yield on a 1-year risk-free zero coupon bond is currently 2.5%. You have a European call option with a 1-year expiration date and an exercise price of $40. If you where to create a strategy that replicates this option, how many shares would you need to buy (shortsell if negative)? In other words, what is the call option delta?
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