A speculator has purchased United States dollar put options, with an exercise price of A$1.30 and a premium of A$0.05 per unit. (a) Calculate the break-even price. (b) Calculate the profit or loss of the option for the speculator if the spot rate at the time the speculator considers exercising the options is : (1) A$1.20 (2) A$1.28 (3) A$1.34 c) What is the maximum profit and maximum loss for the speculator?
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- A speculator has purchased United States dollar put options, with an exercise price of A$1.30and a premium of A$0.05 per unit.(a) Calculate the break-even price.(b) Calculate the profit or loss of the option for the speculator if the spot rate at the time the speculator considers exercising the options is : (1) A$1.20 (2) A$1.28 (3) A$1.34.(c) What is the maximum profit and maximum loss for the speculator?An investor has purchased United States dollar call options, with an exercise price of A$1.15 anda premium of A$0.03 per unit.(a) Calculate the break-even price. (b) Calculate the profit or loss of the option for the investor if the spot rate at the time the investor considers exercising the options is : (1) A$1.10 (2) A$1.17 (3) A$1.23.(c) What is the maximum loss for the investor?(d) Explain why the investor could have an unlimited profit if the options are exercised.(e) Explain in general the similarities of and differences between a currency call option and a currency put option.Assume that the price of a forward contract is 127.87. The European options on the forward contract has an exercise price $150, expiring in 60 days. 3.75% is the continuously compounded risk-free rate, and volatility is 0.33.A. Using the Black model, calculate the price of a call option on a forward contract.B. Calculate the underlying asset's price. Using the Black-Scholes-Merton model, determine the price of a call option on the underlying asset. Should this pricing be any different from the one calculated in letter A? Explain your answer.C. Using the Black model, calculate the price of a put option on a forward contract.D. Using the Black-Scholes-Merton model, compute the price of a put option on the underlying asset. Should this pricing be any different from the one calculated in letter C? Explain your answer.
- You are considering a European put option and a European call option on ABC Ltd and have available the following information. The put option with an exercise price of $15 and time to maturity of 60 days is priced at $2.00. The call option with the same exercise price and time to maturity is priced at $3.00. The underlying asset price is $15. The risk-free rate is 2% per 60 days. Could an arbitrage profit be earned? If so, how much the arbitrage profit is? Show your works (Hint: use discrete put-call parity equation and consider two scenarios for stock price at maturity of the options: $10 or $20).Consider the position of a call writer who sold a call option on Australian dollars at an exercise price of $US0.7600/$A, and a premium of $US0.002/$A. Calculate and graphically depict the profits/losses for this call option position for the following spot prices at exercise date: $US0.7475/$A, $US0.7550/$A, $US0.7600/$A, $US0.7700/$A, and $US0.7800/$A.A trader focuses principally on the Australian Dollar/Singapore Dollar (A$/S$) cross-rate. The current spot rate is S$0.9/A$. The trader expects after 2 months the cross rate will be S$0.79/A$. The trader plans to purchase an option, and has the following choices: A CALL option on S$ has a strike price of S$0.85/A$ and a premium of A$0.00037/S$. A PUT option on S$ has a strike price of S$0.85/A$ and a premium of A$0.00048/S$. i. Determine if the trader should buy a PUT option or a CALL option on S$. ii. If the trader buys the option decided in (i), determine net profit for the trader if the spot rate after 2 months is as the trader expects. iii. If the spot rate after 2 months is not what the trader expected and is S$0.61/A$, will the option the trader buys be at-the-money, or in-the-money, or out-of-the-money? [[Notably, the trader is purchasing option on S$ -- meaning S$ is the foreign currency in this instance]]
- Consider the position of a call writer who sold a call option on Australian dollars at an exercise price of $US0.7600/$A, and a premium of $US0.002/$A. Calculate and graphically depict (excel) the profits/losses for this call option position for the following spot prices at exercise date: $US0.7475/$A, $US0.7550/$A, $US0.7600/$A, $US0.7700/$A, and $US0.7800/$A.Assume that the price of a forward contract is 127.87. The European options on the forward contract has an exercise price $150, expiring in 60 days. 3.75% is the continuously compounded risk-free rate, and volatility is 0.33. Using the Black-Scholes-Merton model, compute the price of a put option on the underlying asset.A trader buys a six-month European call option and sells a six-month European put option. The options have the same underlying asset and the same strike price K. Can you identify a forward contract that has the same payoff as the trader’s combined options position? Under what circumstances does the price of the call equal the price of the put? (HINT: In answering these questions you may find it helpful to draw charts of the payoffs or profits of the two positions.)
- Assume that Epping Co. expects to receive S$500,000 in one year. Epping created a probability distribution for the future spot rate in one year as follows: Future Spot Rate $.68 Probability 20% 62 50 30 61 Assume that one-year put options on Singapore dollars premium of $.04 per unit. One-year call options on Singapore dollars are available with an exercise price of S.60 and a premium of $.03 per unit. a are available, with an exercise price of $0.63 and Use the appropriate options hedge to determine whether the firm would exercise the option using each of the three different spot rates i.e. what would the firm do if each spot rate existed at the time it is considering exercising the option (assume the option is about to expire). Then, show the total amount of receivables (in US dollars) based on the appropriate strategy that would be implemented for each of the three spot rates. Indicate whether the amount would be a maximum or a minimum or neither.Tyson Inc. has an account payable in Swedish krona due in 60 days. Which would be an appropriate hedge? Question 9 options: Enter into a forward contract to sell Swedish krona in two months Borrow Swedish krona for 60 days for the purpose of a money market hedge Buy a put option on the Swedish krona, expiring in 60 days Buy a call option on the Swedish krona, expiring in 60 daysConsider an American put option with time to expiry 15 months, and a strike of 74. The current price of the underlying is 71. Divide the time to expiry into three 5-months intervals. Assume that in each 5-months interval, the price can either rise by 5, or fall by 5, with unknown probability. The risk-free (continuously compounding) rate is 0.042. Using a binomial tree, identify the circumstances under which early exercise would be rational for the holder of this option. Draw the binomial tree and show the necessary calculation and briefly explain the answer.