Possible anwsers: 18:A.-1100, B.-700, C.1100 19. A. Economic value of capital, B
ID: 2800900 • Letter: P
Question
Possible anwsers:
18:A.-1100, B.-700, C.1100
19. A. Economic value of capital, B. accounting value of capital
20. A. 0.0, B. 300, C.-600
Fred Slueth sold a call option on Canadian dollars for $.02 per unit. The strike price was $.78, and the spot rate at the time the option 3 was exercised was S.87. Assume Fred did not obtain Canadian dollars until the option was exercised. Also assume that there are 10,000 units in a Canadian dollar option. What was Fred's net profit on the call option? Question 19 0 out of 5 points The difference between the market value of assets and that of liabilities is the definition of the Question 20 0 out of 5 points Brian Townsend sold a put option on Canadian dollars for $.04 per unit. The strike price was S.84, and the spot rate at the time the option was exercised was $.80. Assume Brittany immediately sold off the Canadian dollars received when the option was exercised. Also assume that there are 10,000 units in a Canadian dollar option. What was Brittany's net profit on the put option?Explanation / Answer
18. Call price , c = $0.02 Per unit
Strike price , x = $0.78
Spot price , s = $0.80
Since current price is more than strike price , holder of call option will exercise the option.
Hence payoff payable = S - X = $0.80 - $0.78 = $0.09
Net profit from call option = Premium received - Payoff paid
= $0.02 - $0.09
= -$0.07 Per unit
Total loss = 10,000 units * -$0.07 Per unit = -$700
19 . Answers: Economic value of capital
Economic value of capital is the current net worth of the company based on market values .
20 . Put option price , p = $0.04
Strike price, X = $0.84
Current price, S = $0.80
Since current price is less than strike price, the holder of the put option will exercise the put option.
Payoff paid = X - S = $0.84 - $0.80 = $0.04 Per unit
Net profit = Premium received - Payoff paid
= $0.04 - $0.04 = $0
Total profit = 10,000 units * $0 Per unit = $0