The shareholders of a firm will benefit the most from a positive net present value project when the delta of the call option on the firm's assets is:
A) equal to one.
B) between zero and one.
C) equal to zero.
D) between zero and minus one.
E) equal to minus one.

Question

Quizplus · Accepted Answer

When the delta of a call option on a firm's assets is equal to one, it means that the value of the call option (and thus the value of the firm's equity) moves one-for-one with changes in the value of the underlying assets. This scenario is most beneficial for shareholders when undertaking a positive net present value project, as it implies the project's positive returns will directly increase the firm's equity value.

The Shareholders of a Firm Will Benefit the Most from a Positive