The delta of a call option on a firm's assets is .624. How much will a project valued at $48,000 increase the value of equity?
A) $18,048
B) $45,336
C) $29,952
D) $76,923
E) $32,189

Question

Quizplus · Accepted Answer

To calculate the increase in the value of equity, we need to use the option pricing formula, which states that the change in the value of equity (ΔE) is equal to the product of the delta (Δ) and the change in the value of the underlying asset (ΔS):
ΔE = Δ × ΔS
Here, Δ = 0.624, and ΔS = $48,000. Therefore:
ΔE = 0.624 × $48,000
ΔE = $29,952
Therefore, the correct choice is C.

The Delta of a Call Option on a Firm's Assets