Can you please help me get to these answers step by step with formulas. I am not
ID: 2760140 • Letter: C
Question
Can you please help me get to these answers step by step with formulas. I am not sure how to solve the questions. if you can not solve all the question, could you please do the first question and the last two questions please!
Calling All Euros. Assume a call option on euros is written with a strike price of $1.2500/E at a premium of 3.80c per euro ($0.0380/) and with an expiration date three months from now. The option is for 100,000. Calculate your profit or loss should you exercise before maturity at a time when the euro is traded spot at strike prices beginning at $1.12/, rising to $1.30/ in increments of $0.03 The profit or loss should you exercise before maturity at a time when the euro is traded spot at $1.12/e is $-3,800.00. (Round to the nearest cent and indicate a loss by using a negative sign.) The profit or loss should you exercise before maturity at a time when the euro is traded spot at $1.15/€ is $-3,800.00. (Round to the nearest cent and indicate a loss by using a negative sign.) The profit or loss should you exercise before maturity at a time when the euro is traded spot at $1.18/€ is $-3,800.00. (Round to the nearest cent and indicate a loss by using a negative sign.) The profit or loss should you exercise before maturity at a time when the euro is traded spot at $1.21/€ is $-3,800.00. (Round to the nearest cent and indicate a loss by using a negative sign.) The profit or loss should you exercise before maturity at a time when the euro is traded spot at $1.24/€ is $-3,800.00. (Round to the nearest cent and indicate a loss by using a negative sign.) The profit or loss should you exercise before maturity at a time when the euro is traded spot at $1.27/e is $-1,800.00. (Round to the nearest cent and indicate a loss by using a negative sign.) The profit or loss should you exercise before maturity at a time when the euro is traded spot at $1.30/ is $1,200.00. (Round to the nearest cent and indicate a lossExplanation / Answer
Call option:
Strike Price = $1.2500/euro
Option Premium = $0.0380/euro
(1). Spot Price = $1.12/euro
Since, spot price is less than the strike price (Strike Price = $1.2500/euro), so the option buyer will not exercise the call option and will purchase the required euros directly in the spot market at a lower price. In this case, his loss will be equal to the option premium paid by him, i.e., $0.0380/euro.
Since the option is for Euro 100,000; his total loss will be $ (0.0380 * 100,000) = $ 3,800.00.
Since it is a loss, it is indicated using a negative sign, i.e., $(- 3,800.00).
(2). Spot Price = $1.15/euro
Since, spot price is less than the strike price (Strike Price = $1.2500/euro), so the option buyer will not exercise the call option and will purchase the required euros directly in the spot market at a lower price. In this case, his loss will be equal to the option premium paid by him, i.e., $0.0380/euro.
Since the option is for Euro 100,000; his total loss will be $ (0.0380 * 100,000) = $ 3,800.00.
Since it is a loss, it is indicated using a negative sign, i.e., $(- 3,800.00).
(3). Spot Price = $1.18/euro
Since, spot price is less than the strike price (Strike Price = $1.2500/euro), so the option buyer will not exercise the call option and will purchase the required euros directly in the spot market at a lower price. In this case, his loss will be equal to the option premium paid by him, i.e., $0.0380/euro.
Since the option is for Euro 100,000; his total loss will be $ (0.0380 * 100,000) = $ 3,800.00.
Since it is a loss, it is indicated using a negative sign, i.e., $(- 3,800.00).
(4). Spot Price = $1.21/euro
Since, spot price is less than the strike price (Strike Price = $1.2500/euro), so the option buyer will not exercise the call option and will purchase the required euros directly in the spot market at a lower price. In this case, his loss will be equal to the option premium paid by him, i.e., $0.0380/euro.
Since the option is for Euro 100,000; his total loss will be $ (0.0380 * 100,000) = $ 3,800.00.
Since it is a loss, it is indicated using a negative sign, i.e., $(- 3,800.00).
(5). Spot Price = $1.24/euro
Since, spot price is less than the strike price (Strike Price = $1.2500/euro), so the option buyer will not exercise the call option and will purchase the required euros directly in the spot market at a lower price. In this case, his loss will be equal to the option premium paid by him, i.e., $0.0380/euro.
Since the option is for Euro 100,000; his total loss will be $ (0.0380 * 100,000) = $ 3,800.00.
Since it is a loss, it is indicated using a negative sign, i.e., $(- 3,800.00).
(6). Spot Price = $1.27/euro
Since, spot price is more than the strike price (Strike Price = $1.2500/euro), so the option buyer will exercise the call option and will purchase Euro 100,000 at the strike price of $1.2500/euro. In this case, his profit/loss will be equal to the excess of the spot rate over the sum of the strike rate and the premium.
Profit/Loss = Spot rate - (Strike rate + Premium)
= $1.27/euro - ($1.2500/euro + $0.0380/euro)
= $(- 0.018)/euro (The negative sign indicates a loss).
Since the option is for Euro 100,000; his total loss will be $ (0.018 * 100,000) = $ 1,800.00.
Since it is a loss, it is indicated using a negative sign, i.e., $(- 1,800.00).
(7). Spot Price = $1.30/euro
Since, spot price is more than the strike price (Strike Price = $1.2500/euro), so the option buyer will exercise the call option and will purchase Euro 100,000 at the strike price of $1.2500/euro. In this case, his profit/loss will be equal to the excess of the spot rate over the sum of the strike rate and the premium.
Profit/Loss = Spot rate - (Strike rate + Premium)
= $1.30/euro - ($1.2500/euro + $0.0380/euro)
= $ (0.012)/euro (The positive sign indicates a profit).
Since the option is for Euro 100,000; his total profit will be $ (0.012 * 100,000) = $ 1,200.00.
Since it is a profit, it is indicated using a positive sign, i.e., $ (1,200.00).