You have bought 6-month put options on the Mexican Peso with a strike price of 0.0490 $/peso at a price of 0.014 cents per peso for 30,000,000 pesos (careful of the decimal points!). Your cost of capital is an annual 9% rate. If the value of the peso declines to 0.0471 in 6 months, what is the total future value (including the cost) of your option position?

You have bought 6-month put options on the Mexican Peso with a strike price of 0.0490 $/peso at a price of 0.014 cents per peso for 30,000,000 pesos (careful of the decimal points!). Your cost of capital is an annual 9% rate. If the value of the peso declines to 0.0471 in 6 months, what is the total future value (including the cost) of your option position?

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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Concept explainers

Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.

Question

You have bought 6-month put options on the Mexican Peso with a strike price of 0.0490 $/peso at a price of 0.014 cents per peso for
30,000,000 pesos (careful of the decimal points!). Your cost of capital is an annual 9% rate. If the value of the peso declines to 0.0471 in 6
months, what is the total future value (including the cost) of your option position?

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