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?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter5: Financial Options

Section: Chapter Questions

Problem 4MC

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Similar questions

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