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    Black-Scholes call option.

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    Show that Black-Scholes call option hedge ratios also increase as the stock price increases. Consider a one-year option with exercise price $50 on a stock with annual standard deviation 20%. The T-bill rate is 8% per year. Find N(d1) for stock prices $45, $50, and $55.

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    Solution Preview

    S = $45, $50, and $55
    X = $50
    r = 8%
    ó = 20%
    T = 1

    N(d1) = N(-0.0268) = 0.4893

    N(d1) = N(0.50) = ...

    Solution Summary

    This solution is comprised of a detailed explanation to find N(d1) for stock prices $45, $50, and $55.

    $2.19