Assume that the delta of a call option on a firm's assets is .792. This means that a $50,000 project will increase the value of equity by:
A) $27,902.
B) $39,600.
C) $43,820.
D) $63,131.
E) $89,600.

Question

Quizplus · Accepted Answer

The delta of a call option represents the change in the value of the option for every $1 change in the price of the underlying asset. In this case, the delta is .792, which means that for every $1 increase in the value of the underlying asset, the value of the call option will increase by $0.792.

Therefore, if a $50,000 project increases the value of the underlying asset by $1, the value of equity will increase by:

0.792 x $50,000 = $39,600

So, the correct answer is B.

Assume That the Delta of a Call Option on a Firm's