A Share Sells for $40, and Its Call Option Sells

question 62

Multiple Choice

A share sells for $40, and its call option sells for $4. The hedge ratio is .8 and the share price rises by 10%. The call option price should

• A) fall by 20%.
• B) rise by 80%.
• C) rise to $4.80.
• D) fall by $3.20.

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Definitions:

Resistance

A measure of the opposition to current flow in an electrical circuit, affecting how much current flows for a given voltage.

Circuit Breakers

A circuit protection device that acts like a switch to open the circuit when current flow becomes excessive.

Excessive Current

A condition where the flow of electrical current exceeds the design limits of a circuit or device, potentially causing damage or overheating.

Reset

The act of bringing a device, component, or system back to its original state or setting, often to correct a malfunction or restart a process.