The same call option cost if the volatility was reduced to 10.500% when the spot rate fell to $1.2475/€ would be $/€. (Round to four decimal places.)
The same call option cost if the volatility was reduced to 10.500% when the spot rate fell to $1.2475/€ would be $/€. (Round to four decimal places.)
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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Transcribed Image Text:U.S. Dollar/Euro. The table, indicates that a 1-year call option on euros at a strike rate of
$1.2503/€ will cost the buyer $0.0544/€, or 4.30%. But that assumed a volatility of 10.500% when
the spot rate was $1.2648/€. What would the same call option cost if the volatility was reduced to
10.500% when the spot rate fell to $1.2475/€?
The same call option cost if the volatility was reduced to 10.500% when the spot rate fell to
$1.2475/€ would be $/€. (Round to four decimal places.)
Transcribed Image Text:(Click the icon to copy table into a spreadsheet.)
Pricing Currency Options on the Euro
Spot rate (domestic/foreign)
Forward rate (domestic/foreign)
Strike rate (domestic/foreign)
Domestic interest rate (% p.a.)
Foreign interest rate (% p.a.)
Time (years, 365 days)
Days equivalent
Volatility (% p.a.)
Call option premium (per unit fc)
Put option premium (per unit fc)
(European pricing)
Call option premium (%)
Put option premium (%)
AU.S.-based firm wishing to buy
or sell euros (the foreign currency)
Variable
SO
FO
X
rd
T
S
d1
d2
N(d1)
N(12)
C
P
C
P
$ 1.2648
$ 1.2556
$ 1.2503
1.452
2.186
1.000
365.00
10.500
Value
0.0928
-0.0122
0.5370
0.4951
$ 0.0544
$ 0.0491
4.30
3.88
%
%
A European firm wishing to buy
or sell dollars (the foreign currency)
Variable
SO
FO
X
rd
T
S
d1
d2
N(d1)
N(d2)
C
P
с
P
€ 0.7906
€ 0.7964
Value
€
0.7998
2.186
1.452
1.000
365.00
10.500
0.0119
-0.0931
0.5047
0.4629
€ 0.0310
€ 0.0344
3.92
4.35
%
%
%
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