The delta of a call option on a firm's assets is.804. This means that a $60,000 project will increase the value of equity by:
A) $11,760.
B) $21,336.
C) $48,240.
D) $74,627.
E) $108,240.

Question

Quizplus · Accepted Answer

The delta of a call option represents the sensitivity of the option's price to changes in the price of the underlying asset. A delta of 0.804 means that for every $1 increase in the firm's asset value, the call option (equity) increases by $0.804. Therefore, a $60,000 increase in asset value will increase the equity value by $60,000 * 0.804 = $48,240.

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