loss of $6,250 loss of $10,000 gain of $625

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
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The current spot exchange rate is $1.18 = €1.00 and the three-month forward rate is
$1.16 €1.00. You buy a put option on €62,500 with a strike price of $1.23 €1.00
and pay an option premium (price) of $0.06 per euro. If the exchange rate at
expiration is $1.07 €1.00, what is your profit or loss from the option position?
loss of $6,250
loss of $10,000
gain of $625
gain of $6,250
gain of $10,000
loss of $625
Transcribed Image Text:= The current spot exchange rate is $1.18 = €1.00 and the three-month forward rate is $1.16 €1.00. You buy a put option on €62,500 with a strike price of $1.23 €1.00 and pay an option premium (price) of $0.06 per euro. If the exchange rate at expiration is $1.07 €1.00, what is your profit or loss from the option position? loss of $6,250 loss of $10,000 gain of $625 gain of $6,250 gain of $10,000 loss of $625
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