CUMULATIVE NORMAL DISTRIBUTION TABLE
-Refer to the information above. A stock is currently selling for $60. The stock pays no dividends. A call option on the stock has a strike price of $55 and has 3 months to expiration.
The implied volatility is 30%, and the annualized risk-free rate is 3%. What is the option's
Hedge ratio, rounded to the nearest hundredth?

Question

CUMULATIVE NORMAL DISTRIBUTION TABLE 
-Refer to the information above. A stock is currently selling for $60. The stock pays no dividends. A call option on the stock has a strike price of $55 and has 3 months to expiration.
The implied volatility is 30%, and the annualized risk-free rate is 3%. What is the option's
Hedge ratio, rounded to the nearest hundredth?

Quizplus · Accepted Answer

The hedge ratio is the ratio of the change in the option's price to the change in the underlying stock price. In this case, the option's price is $5 and the underlying stock price is $60. The implied volatility is 30% and the annualized risk-free rate is 3%. Using the Black-Scholes model, we can calculate the hedge ratio to be 0.76.