Malibu, Inc., is a U.S. company that imports British goods. It plans to use call options to hedge payables of 100,000 pounds in 90 days. Three call options are available that have an expiration date 90 days from now. Fill in the number of dollars needed to pay for the payables (including the option premium paid) for each option available under each possible scenario. Spot Rate of Pound Exercise Price Exercise Price Exercise Price 90 Days = $1.71; = $1.76; = $1.80; Scenario from Now Premium = $.04 Premium = $.06 Premium = $.03 1 $1.65 2 1.74 3 1.78 4 1.82 5 1.85 If each of the five scenarios had an equal probability of occurrence, which option would you choose? Explain. (See Ch 11, Q27)
- Malibu, Inc., is a U.S. company that imports British goods. It plans to use call options to hedge payables of 100,000 pounds in 90 days. Three call options are available that have an expiration date 90 days from now. Fill in the number of dollars needed to pay for the payables (including the option premium paid) for each option available under each possible scenario.
Spot Rate
of Pound Exercise Price Exercise Price Exercise Price
90 Days = $1.71; = $1.76; = $1.80;
Scenario from Now Premium = $.04 Premium = $.06 Premium = $.03
1 $1.65
2 1.74
3 1.78
4 1.82
5 1.85
If each of the five scenarios had an equal probability of occurrence, which option would you choose? Explain. (See Ch 11, Q27)
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