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:

Collision Theory

A theory that proposes chemical reactions occur when reactant molecules collide with sufficient energy and an appropriate orientation.

High Energy

A term used to describe processes, particles, or quantum states having relatively large amounts of kinetic or potential energy.

Particle Motion

The description of the kinetic activity of particles in matter, affected by temperature and physical state, underlying the principles of diffusion and gas behavior.

Reaction Speed

The rate at which reactants are converted to products in a chemical reaction.