Questions from General Investment

Q: According to the Black-Scholes formula, what will be the

According to the Black-Scholes formula, what will be the hedge ratio (delta) of a call option as the stock price becomes infinitely large? Explain briefly.

Q: According to the Black-Scholes formula, what will be the

According to the Black-Scholes formula, what will be the hedge ratio (delta) of a put option for a very small exercise price?

Q: The hedge ratio of an at-the-money call option

The hedge ratio of an at-the-money call option on IBM is .4. The hedge ratio of an at-the-money put option is −.6. What is the hedge ratio of an at-the-money straddle position on IBM?

Q: Is a put option on a high-beta stock worth more

Is a put option on a high-beta stock worth more than one on a low-beta stock? The stocks have identical firm-specific risk.

Q: These three put options are all written on the same stock.

These three put options are all written on the same stock. One has a delta of −.9, one a delta of −.5, and one a delta of −.1. Assign deltas to th...

Q: Let p(S, T, X) denote the value

Let p(S, T, X) denote the value of a European put on a stock selling at S dollars, with time to maturity T, and with exercise price X, and let P(S, T, X) be the value of an American put. a. Evaluate p...

Q: All else equal, is a call option on a stock with

All else equal, is a call option on a stock with a lot of firm-specific risk worth more than one on a stock with little firm-specific risk? The betas of the two stocks are equal.

Q: What will happen to the delta of a convertible bond as the

What will happen to the delta of a convertible bond as the stock price becomes very large?

Q: A company’s current ratio is 2.0. Suppose the company

A company’s current ratio is 2.0. Suppose the company uses cash to retire notes payable due within one year. What would be the effect on the current ratio and asset turnover ratio?

Q: Suppose you are attempting to value a 1-year expiration option

Suppose you are attempting to value a 1-year expiration option on a stock with volatility (i.e., annualized standard deviation) of σ = .40. What would be the appropriate values for u and d if your bin...