A Stock Is Currently Trading at $100 $u = 1.10$ Or Fall by a Factor Of

question 28

Multiple Choice

A stock is currently trading at $100. In each month, the stock will either increase in price by a factor of $u = 1.10$ or fall by a factor of $d = 0.90$ . The risk-free rate of interest per month is 0.1668% in simple terms, i.e., an investment of $1 at the risk-free rate returns $1.001668 after one month. What is the delta of a 100-strike, three-month European call option?

• A) 0.4667
• B) 0.5000
• C) 0.5333
• D) 0.5667

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Definitions:

Monopolistically Competitive Industry

An industry characterized by many firms producing slightly differentiated products, leading to competitive market conditions but with each firm maintaining some market power.

Differentiated Product

A product that is distinguished from similar products offered by competitors through variations in design, functionality, or quality, making it more appealing to a specific segment of consumers.

Monopolistically Competitive Firm

A company that operates in a market structure characterized by many firms selling products that are similar but not identical, allowing for some degree of market power and product differentiation.

Market Share

The market share that a certain company or product possesses within the industry.