The value of an option is $6.24, its delta is 0.5, and the price for the underlying stock is $82. What will be the expected price of an option be if the price for the underlying stock drops to $80.50?

The value of an option is $6.24, its delta is 0.5, and the price for the underlying stock is $82. What will be the expected price of an option be if the price for the underlying stock drops to $80.50?

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 1P

See similar textbooks

Related questions

Q: A stock has an expected return of 14.3 percent, the risk-free rate is 3.9 percent, and the market…

A: Given: Expected return = 14.3% Risk free rate = 3.9% Market risk premium = 7.8%

Q: A stock has a required return of 12%, the risk-free rate is 2.5%, and the market risk premium is 5%.…

A: The Capital Asset Pricing Model (CAPM) is a model that describes the relationship between the…

Q: The DB stock currently sells for 185 kr. A one-year put option with strike price 200 kr has a…

A: Price of call option can be calculated from the put call parity equation assuming that the no…

Q: Consider a portfolio that consists of the following four derivatives: 1) a put option written (sold)…

A: Portfolio refers to a range of investments held by a person or an organization.

Q: Need help

A: Calculation of Risk-Free Rate:The risk-free rate is 4.87%.Excel Spreadsheet:

Q: The value of an option is $5.64, its theta is 0.03. What will be the expected price of the option on…

A: The rate at which the value of an option declines with time is called as theta. It is written as a…

Q: A call option is selling at the strike price of $500, with a premium on the option of $50. If the…

A: Break even is price at which there is no profit no loss

Q: The exercise price on one of Boudreaux Company’s call options is $14, its exercisevalue is $20, and…

A: Calculation of option’s market value and stock’s current price: Answer: Option’s market value is $25…

Q: A call option on a non-dividend-paying stock has a strike price of $30 and a time to maturity of six…

A: An option is a financial instrument that is based on the value of underlying securities such as…

Q: A stock has a required return of 13%, the risk-free rate is 3%, and the market risk premium is 6%.…

A: Beta means the measure of changes in the stock in connection with the entire market. Beta is…

Q: The current market price of a share of a stock is $58.33. Both call and put options on this stock…

A: Current market price = $58.33 Strike price = $70

Q: The price of a share follows the geometric Brownian motion with parameters µ = 0.2 and σ = 0.18.…

A: Risk-Neutral price of call option=c=π*c++(1-π)*c-1+r where is the probability, r is the risk-free…

Q: DEP stock is currently at $100 and it is expected to either go up or down by 10%. A call option was…

A: 1. DEP STOCK Current market price = $100 Growth rate = 10% Risk free rate = 4.5% Intrinsic value =…

Q: The stock of Al-Maha Company is expected to have the following probability distributions with…

A: Option price: It is the amount of premium that the option’s buyer has to pay to the writer of the…

Q: What is the delta of the put option? Solution for A = -0.40 b) You short 100 put options. How…

A: Black-Scholes Merton Model: This model is used to compute the price of options contracts. The…

Q: The value of an option is $3.16, its vega is 0.7. What will be the expected price of the option if…

A: Vega of an option will measure the impact of changes in volatility on the price of an option.

Q: 1. ABC Corp has a stock price of $100 and a one-year Option with a strike price of $105. Assuming an…

A: Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: A stock has a price of $73, which can later be $77 or $69 with equal probabilities. The options with…

A: Stock price = $73 Option with exercise price = $77 Call = $1.53 Put = $1.73 Gain or loss = ?

Q: A call option on the stock of Bedrock Boulders has a market price of $7.The stock sells for $30 a…

A: Put-call options are contractual derivative agreements. There exist two parties- one who buys the…

Q: We vill use the binonial option pricing nodel to value the following put option on a stock. Time to…

A: Since there are several questions, we will answer the first three subparts. Please repost the…

Q: A PUT and a CALL option are written on a stock with a strike price of $60. The options are held…

A: Strike Price = $60 Spot price = $75 Call premium = $16 Put Premium = $3

Q: The current price of a stock is $50, and the annual riskfreerate is 5.5%. A call option with a…

A: Option: An option is a special type of contract which gives its holder the right but not obligation…

Q: An option is trading at $3.45. If it has a delta of .78, what would the price of the option be if…

A: Options are derivative contract that provides holder a right not obligation to trade certain assets…

Q: You are attempting to value a call option with an exercise price of $105 and one year to expiration.…

A: A call option gives the holder the right to buy the underlying asset at a specified price and at a…

Q: What is the value of a call option if the underlying stock price is $84, the strike price is $80,…

A: Option valuation when risk free rate and volatility are known is calculated by Black Scholes Model.…

Q: Suppose that both a call option and a put option have been written on a stock with an exercise price…

A: Calculate the profit on the short call option by adding the premium value (P) which is $3 from call…

Q: You buy a share of stock, write a 1-year call option with X = $10, and buy a 1-year put option with…

A: a) Payoff table:

Q: A call option is selling at the strike price of $500, with a premium on the option of $50. If the…

A: Break even is price at which there is no profit no loss

Q: A call option on Rosenstein Corporation stock has a market price of $7. Thestock sells for $31 a…

A: An option is a contact to purchase a financial asset from one part and sell it to another party for…

Q: the stock will be worth $25. | What is the present discounted value of the call option? | What would…

A: A call option gives the holder of the option a right, but not an obligation to buy stocks at a…

Q: stock price will rise to $90 and a 40% chance it will fall to $75. The risk free bond gets 5%. •…

A: “Since you have posted a question with multiple sub-parts, we will solve first three subparts for…

Q: Assume a stock price is P120, and in next year, it will either rise by 10 percent or fall by 20…

A: A company has several sources from where it can raise funds. It can issue equity shares and the…

Q: call option is selling at the strike price of $500, with a premium on the option of $50. If the…

A: Call option is option which grants buyer right to purchase on MATURITY underlying shares but no…

Q: The current price of a stock is $33, and the annual risk-free rate is 6%. Acall option with a strike…

A: Given information: Current stock price is $33 Annual risk free rate is 6% Call option strike price…

Q: Consider shorting a call option c on a stock S where S = 24 is the value of the stock, K = 30 is the…

A: Call option: It is an option given to the buyer of the contract to buy stocks at a pre-decided date…

Q: Assume a stock is selling for GH¢48.50 with options available at 40, 50, and 60 strike prices. The…

A: A put option is an agreement that grants the option buyer the opportunity, but not the…

Q: What would be the spot price if a stock index futures price were $75, the risk-free rate were 10…

A: Futures price is $75 Risk free rate is 10% Dividend yield is 3%

Q: A. An option is trading at $5.03. If it has a delta of -.56, what would the price of the option be…

A: Delta of an option is the change in price of option to change in price of underlying.

Question

Expert Solution

Step 1

Delta of an Option helps in determining the change in value of an option due to change in price of underlying stock

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

In 1973, Fischer Black and Myron Scholes developed the Black-Scholes option pricing model (OPM). (1) What assumptions underlie the OPM? (2) Write out the three equations that constitute the model. (3) According to the OPM, what is the value of a call option with the following characteristics? Stock price = 27.00 Strike price = 25.00 Time to expiration = 6 months = 0.5 years Risk-free rate = 6.0% Stock return standard deviation = 0.49
A non – dividend – paying stock with a current price of $52, the strike price is $50, the risk free interest rate is 12% pa, the volatility is 30% pa, and the time to maturity is 3 months? a) Calculate the price of a call option on this stock b) What is the price of a put option price on this stock? c) Is the put-call parity of these options hold?
The value of an option is $5.64, its theta is 0.03. What will be the expected price of the option on the following day if the price of the underlying stock does not change?
A call option on the stock of Bedrock Boulders has a market price of $7.The stock sells for $30 a share, and the option has a strike price of $25 ashare. What is the exercise value of the call option? What is the option’stime value?
The value of an option is $3.16, its vega is 0.7. What will be the expected price of the option if the volatility of the underlying stock increases by $0.8?
What is the value of a call option if the underlying stock price is $84, the strike price is $80, the underlying stock volatility is 42 percent, and the risk-free rate is 4 percent? Assume the option has 135 days to expiration.
A. An option is trading at $5.03. If it has a delta of -.56, what would the price of the option be if the underlying increases by $.75? What would the price of the option be if the underlying decreases by $.55? B. What type of option is this and how? C. With a delta of -.56, is this option ITM, ATM or OTM and how?
You are long both a call and a put on the same share of stock with the same exercise date. The exercise price of the call is $40 and the exercise price of the put is $45. What is the minimum payoff from this option portfolio at the expiration date? (in dollars without the dollar sign, use two decimal places).
Assume a stock is selling for GH¢48.50 with options available at 40, 50, and 60 strike prices.The 50 call option price is at 2.75.a. What is the intrinsic value of the 50 call?b. Is the 50 call in the money?c. Are the 40 and 60 call options in the money?
Suppose the current stock price of JuJube Inc is ¥100, the risk-free interest rate is 5%, the standard deviation is 25%, the time to maturity is 4 months, the strike price is ¥85, and the price of a call option is ¥25.20. Using the put-call parity relationship, the put option price is closest to A. ¥25.20 B. ¥16.40 C. ¥5.20 D. ¥8.80 E. None of the above
An option is trading at $3.45. If it has a delta of .78, what would the price of the option be if the underlying increases by $.75? A. What would the price of the option be if the underlying decreases by $.55? B. What makes this a call option? C. With a delta of .78, is this option ITM, ATM or OTM and how?
Suppose that you purchased a call option on the S&P 100 Index. The option has an exercise price of 1,680, and the index is now at 1,720. What will happen when you exercise the option?