A firm has a payable of €2,400,000.00. They hedge this exposure with a call option with a strike price of $1.2083 / €. The premium of the option is $0.0121. If at the time of payment the spot price ends up equal to $1.2687 / €. What is the firm's total cost?

Payable = €2,400,000 Strike price = $1.2083 per €Option premium = $0.0121Spot price at expiry =…

Answered: A firm has a payable of €2,400,000.00.…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A firm has a payable of €2,400,000.00. They hedge this exposure with a call option with a strike price of $ 1.2083 / €. The premium of the option is $0.0121. If at the time of payment the spot price ends up equal to $ 1.2687 / €. What is the firm's total cost?