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The continuously compounded interest rate on 5-year default-free Australian dollar-denominated bonds is 0.5% per annum. The continuously compounded interest rate on 5-year default-free Euro- denominated bonds is 0.2% per annum. There are no transactions costs. The current exchange rate is $1.50 Australian for 1 Euro. There will be arbitrage opportunities unless a 5-year European-style put option on 50,000 Euro with an exercise price of $90,000 is worth at least O $13,528.88 O $12,777.89 O $57,413.10 O $16,524.60

The continuously compounded interest rate on 5-year default-free Australian dollar-denominated bonds is 0.5% per annum. The continuously compounded interest rate on 5-year default-free Euro- denominated bonds is 0.2% per annum. There are no transactions costs. The current exchange rate is $1.50 Australian for 1 Euro. There will be arbitrage opportunities unless a 5-year European-style put option on 50,000 Euro with an exercise price of $90,000 is worth at least O $13,528.88 O $12,777.89 O $57,413.10 O $16,524.60

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter22: International Financial Management
Section: Chapter Questions
Problem 2P
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The continuously compounded interest rate on 5-year default-free Australian dollar-denominated bonds is 0.5% per annum. The continuously compounded interest rate on 5-year default-free Euro- denominated bonds is 0.2% per annum. There are no transactions costs. The current exchange rate is $1.50 Australian for 1 Euro. There will be arbitrage opportunities unless a 5-year European-style put option on 50,000 Euro with an exercise price of $90,000 is worth at least O $13,528.88 O $12,777.89 O 557.413.10 O $16,524.60 O $13,524.15
Transcribed Image Text:The continuously compounded interest rate on 5-year default-free Australian dollar-denominated bonds is 0.5% per annum. The continuously compounded interest rate on 5-year default-free Euro- denominated bonds is 0.2% per annum. There are no transactions costs. The current exchange rate is $1.50 Australian for 1 Euro. There will be arbitrage opportunities unless a 5-year European-style put option on 50,000 Euro with an exercise price of $90,000 is worth at least O $13,528.88 O $12,777.89 O 557.413.10 O $16,524.60 O $13,524.15
You sell a European put option with the following parameters: m = -0.6, S = $18, p = $4, r = 1% p 6 p.a., %3D mu = 9% p.a. Both r and mu are continuously compounded. What is the instantaneous continuously- compounded expected return on your put position? O +22.6% p.a. O +20.6% p.a. O +4.8% p.a. O-4.8% p.a. O -20.6% p.a.
Transcribed Image Text:You sell a European put option with the following parameters: m = -0.6, S = $18, p = $4, r = 1% p 6 p.a., %3D mu = 9% p.a. Both r and mu are continuously compounded. What is the instantaneous continuously- compounded expected return on your put position? O +22.6% p.a. O +20.6% p.a. O +4.8% p.a. O-4.8% p.a. O -20.6% p.a.
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