For a Call Option,the Rate of Increase in the Share $0.10$

question 3

Multiple Choice

For a call option,the rate of increase in the share price is 2%,while the rate of decrease in the share price is 1%.If the share price increases,the call price is $10.10,while the call price will be $9.95 if the share price decreases.Given this information,and that the asset price is currently $10.00 and the risk-free rate is 5% p.a. ,calculate the risk-free hedge ratio.

• A) \( 0.10 \)
• B) \( 0.15 \)
• C) \( 0.17 \)
• D) \( 0.20 \)

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Definitions:

Covenants

Agreements or promises in a financial contract that certain activities will or will not be undertaken.

Dedicated Capital

Funds allocated specifically for a particular investment or project within a company.

Unsecured Debts

Financial obligations that are not backed by collateral, making them riskier for lenders and potentially resulting in higher interest rates for borrowers.