Devon Company has collected the following data for one of its products: Direct materials standard (4 pounds @ $1/lb.) $4 per
1 answer:
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Answer:
≈66 shares
Explanation:
Given data:
Current price ( S ) = $25
strike price ( K ) = $30
risk free rate ( r ) = 4% = 0.04
Standard deviation ( std ) = 30% = 0.3
In( s/k ) = In ( 25/30 ) = -0.1827
t = 30 / 365
To determine the number of shares of stock per 100 put options to hedge the risk we will apply the relation below
Number of shares to hedge risk = | N(d1) - 1 | * 100 ----- ( 1 )
where :
N(d1 ) = cumulative distribution function = 0.3394
back to equation 1 = 0.6606 * 100 = 66 shares
attached below is the remaining part of the solution
Answer:
A. Demand shifts to the right, price rises, quantity rises.
Explanation:
In economics demand shifts as a result of other factors except for price.
In this instance the statement by the surgeon general on how hats reduce skin cancer will result in a demand shift to the right.
The effect of this is the demand for hats will increase, the prices will also increase. This is illustrated in the attached diagram.
Demand shifts from D1 to D2, price increases from P1 to P2, and quantity increases from Q1 to Q2
