The current spot exchange rate is $1.55 £1.00. Consider an American put option on £62,500 with a strike price of $1.50 £1.00. Immediate exercise of this option will generate a profit of = - A. $6,125. B. -$6,125 C. negative profit, so exercise would not occur. D. $3,125. 0% $6,125. 0% -$6,125 0% negative profit, so exercise would not occur 0% $3,125.
The current spot exchange rate is $1.55 £1.00. Consider an American put option on £62,500 with a strike price of $1.50 £1.00. Immediate exercise of this option will generate a profit of = - A. $6,125. B. -$6,125 C. negative profit, so exercise would not occur. D. $3,125. 0% $6,125. 0% -$6,125 0% negative profit, so exercise would not occur 0% $3,125.
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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Give an Answer with Explanation and also give Explanation of correct and incorrect option
Transcribed Image Text:The current spot exchange rate is $1.55
= £1.00. Consider an American put
option on £62,500 with a strike price
of $1.50 £1.00. Immediate exercise of
this option will generate a profit of
=
A. $6,125.
B. -$6,125
C. negative profit,
so exercise would
not occur.
D. $3,125.
0%
0%
$6,125. -$6,125
0%
negative
profit, so
exercise
would not
occur.
0%
$3,125.
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