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

If the delta of the call option on the firm's assets is equal to one, this means that as the value of the firm's assets increases, the value of the call option increases at the same rate. When the call option is exercised, the value of the firm's assets is transferred to the equity holders. Therefore, a delta of one on the call option would result in the largest increase in equity for the firm.

For Every Positive Net Present Value Project That a Firm