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(i) The shares of the company ACME Inc., whose volatility is estimated to be 20%, is currently priced at e15. The risk free interest rate is 4% per annum. Find the Black-Scholes price of a European call option on ACME Inc. with strike price e17 that expires in three months’ time.

(ii) One month later, the price of ACME Inc. shares has climbed to e18. How many shares per call issued should the writer of the call option hold in order to hedge her position?

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Financial Management, Finance

Category:- Financial Management
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