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

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

Question:

Don't use plagiarized sources. Get Your Custom Assignment on
3. Consider the graph of a call option shown at right. The option is a three-month American call option…
From as Little as $13/Page

 

Transcribed Image Text:

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
View the full answer