The Current Price of a Call Is $5 and the Stock

question 33

Multiple Choice

The current price of a call is $5 and the stock is trading at $50.The delta and gamma of the call are 0.5 and 0.05,respectively.If the stock price increases to $50.50,then approximate the new call price using the information given:

• A)$5.24375
• B)$5.25
• C)$5.25625
• D)$5.2625

---

Definitions:

Random Walk

Describes the notion that stock price changes are random and unpredictable.

Submartingale

A type of stochastic process where the conditional expected future value of the process is at least equal to the present value.

Expected Price

The forecasted price of an asset, based on current information and analysis.

Intensively Sold

A marketing strategy that aims for widespread distribution and makes the product available at as many retail locations as possible.