Which of the following describes delta? The ratio of the option price to the stock price None of these The ratio of a change in the option price to the corresponding change in the stock price The ratio of a change in the stock price to the corresponding change in the option price The ratio of the stock price to the option price
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- Describe the effect of a change in each of the following factors on the value of a calloption:1. Stock price2. Exercise price3. Option life4. Risk-free rateDescribe the effect of a change in each of the following factorson the value of a call option: (1) stock price, (2) exercise price,(3) option life, (4) risk-free rate, and (5) stock return standarddeviation (i.e., risk of stock).a. Explain how and why an increase in each of the following affects the prices of both call and putoptions, holding all other variables constant: i. The current stock price ii. The strike price
- Which of the following statements true? A call option price is increasing in stock return volatility A put option price is decreasing in stock return volatility I. II. A) I. and II. are true B) I. is true and II. is false C) II. is true and I. is false D) I. and II. are false |What impact does each of the followingparameters have on the value of a call option?(1) Current stock priceIn the Black-Scholes option pricing model, the value of a call is inversely related to: a. the risk-free interest stock b. the volatility of the stock c. its time to expiration date d. its stock price e. its strike price
- What is meant by the delta of a stock option?Astromet is financed entirely by common stock and has a beta of 1.20. The firm pays no taxes. The stock has a price-earnings multiple of 11.0 and is priced to offer a 10.9% expected return. The company decides to repurchase half the common stock and substitute an equal value of debt. Assume that the debt yields a risk-free 4.6%. Calculate the following: Required: a. The beta of the common stock after the refinancing b. The required return and risk premium on the common stock before the refinancing c. The required return and risk premium on the common stock after the refinancing d. The required return on the debt e. The required return on the company (i.e, stock and debt combined) after the refinancing If EBIT remains constant: f. What is the percentage increase in earnings per share after the refinancing? g-1. What is the new price-earnings multiple? g-2. Has anything happened to the stock price? Complete this question by entering your answers in the tabs below. Reg A to E Reg F to G2…Which of the following techniques is used to value stock options? a. Black-Scholes method b. Zero-coupon method c. Weighted-average method d. Expected earnings method
- What is not a variable in Boundary Conditions? a) underlying stock price at expiration b) exercise price c) time to maturity d) underlying stock price at Time=0 e) interest rateWhich of the following would increase the price of a put option on common stock , all else equal? I. Decrease in stock price II . Decrease in stock price volatility III . Decrease in time to maturity IV . Increase in exercise price II , and IV l and IV I only I III , and IV IV onlyDescribe the effect on a call option’s price that results from an increasein each of the following factors: (1) stock price, (2) strike price, (3) time toexpiration, (4) risk-free rate, and (5) standard deviation of stock return.