Q7I
ExpertverifiedShow that BlackScholes call option hedge ratios increase as the stock price increases. Consider a oneyear option with exercise price $50 on a stock with annual standard deviation 20%. The Tbill rate is 3% per year. Find N (d_{1}) for stock prices $45, $50, and $55.
With the increase in stock prices N (d_{1}) too increases.
Exercise price = X = 50
Rate = r = 3%
Standard deviation = σ = 20%
Time = T = 1
Formula for (d_{1}) = In (S_{0} / X) + (r δ+ σ^{2} /2)T / σ√2
S.  d_{1}  N(d_{1}) 
a.   0.2768  0.3910 
b.  0.2500  0.5987 
c.  0.7266  0.7662 

 = normdist(d_{1}) 
This is evident that with the increase in stock prices N(d_{1}) too increases.
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