The delta of a call option on a ﬁrm's assets is .613. This means that a $35,000 project will increase the value of equity by:
A) $19,260.
B) $21,455.
C) $48,240.
D) $56,455.
E) $57,096.

Question

Quizplus · Accepted Answer

The delta of a call option measures the sensitivity of the option's price to changes in the underlying asset's price. If the delta of a call option is 0.613, it means that for every $1 increase in the asset value, the option price will increase by $0.613.

Using this information, we can calculate the increase in equity value from a $35,000 project as follows:

Delta * Change in asset value = Change in option price
0.613 * $35,000 = $21,455

Therefore, the project will increase the value of equity by $21,455.

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