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The current price of a stock is $200. Over the next year, it is expected to go up or down by 14% or 13%, respectively. The stock pays a dividend yield of 8% per year and the risk-free rate is 5% per year with continuous compounding. A market-maker of an important investment bank just sold 100 at-the-money European call options (i.e. one contract) expiring in one year to an important client. shares of the stock does she need to buy in order to hedge her exposure? Express your How many answer with two decimals.

The current price of a stock is $200. Over the next year, it is expected to go up or down by 14% or 13%, respectively. The stock pays a dividend yield of 8% per year and the risk-free rate is 5% per year with continuous compounding. A market-maker of an important investment bank just sold 100 at-the-money European call options (i.e. one contract) expiring in one year to an important client. shares of the stock does she need to buy in order to hedge her exposure? Express your How many answer with two decimals.

Essentials Of Investments
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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The current price of a stock is $200. Over the next year, it is expected to go up or down by 14% or 13%, respectively. The stock pays a dividend yield of 8% per year and the risk-free rate is 5% per year with continuous compounding. A market-maker of an important investment bank just sold 100 at-the-money European call options (i.e. one contract) expiring in one year to an important client. How many shares of the stock does she need to buy in order to hedge her exposure? Express your answer with two decimals.
Transcribed Image Text:The current price of a stock is $200. Over the next year, it is expected to go up or down by 14% or 13%, respectively. The stock pays a dividend yield of 8% per year and the risk-free rate is 5% per year with continuous compounding. A market-maker of an important investment bank just sold 100 at-the-money European call options (i.e. one contract) expiring in one year to an important client. How many shares of the stock does she need to buy in order to hedge her exposure? Express your answer with two decimals.
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