3. Consider the graph of a call option shown at right. The option is a three-month American call option…

Question:

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3. Consider the graph of a call option shown at right. The option is a three-month

American call option on €62,500 with a strike price of $1.50 = €1.00 and an

option premium of $3,125.

What are the values of A, B, and C, respectively?

i)

Profit

A

loss

–3

2-11

ST

A. A-$3,125 (or -$.05 depending on your scale); B = $1.50; C = $1.55

B. A = €3,750 (or -€.06 depending on your scale); B = $1.50; C = $1.55

C. A = $.05; B = $1.55; C = $1.60

D. none of the above

ii) Suppose that spot rate on the expiration date is $1.70/€. What is the

gain/loss?

iii) Suppose that the spot rate on the expiration date is $1.53/€. What is the

gain/loss?

Circle the correct answer to part i) above and provide the workings to parts i), ii)

and iii below:

Expert Answer:

Answer rating: 100% (QA)

I Correct option is A The maximum loss A 3125 The loss

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