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A portfolio consists of 400 shares of stock and 200 calls on that stock. If the hedge ratio for the call is 0.6, what would be the dollar change in the value of the portfolio in response to a $1 decline
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A portfolio consists of 400 shares of stock and 200 calls on that stock. If the hedge ratio for the call is 0.6, what would be the dollar change in the value of the portfolio in response to a $1 decline in the stock price

User Joy Hyuk Lee
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1 Answer

1 vote

Answer: -$520

Step-by-step explanation:

From the question, we are informed that a portfolio consists of 400 shares of stock and 200 calls on that stock and that the hedge ratio for the call is 0.6.

The dollar change in the value of the portfolio in response to a $1 decline in the stock price will then be:

= -$400 + [-$200(0.6)]

= -$400 - $120

= -$520.

User Mwrf
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