For every positive net present value project that a ﬁrm undertakes, the equity in the ﬁrm will increase the most if the delta of the call option on the ﬁrm's assets is:

Question

Quizplus · Accepted Answer

When the delta of a call option on a firm's assets is equal to one, it means that for every dollar increase in the value of the underlying assets, the value of the call option (and hence the equity, since equity can be viewed as a call option on the firm's assets) increases by one dollar. This direct one-to-one relationship maximizes the increase in equity value for every positive net present value project the firm undertakes.

For Every Positive Net Present Value Project That a ﬁRm