Frank is an option speculator. He anticipates the Danish kroner to appreciate from its current level of £0.09 to £0.10. Currently, kroner call options are available with an exercise price of £0.08 and a premium of £0.03. Should Frank attempt to buy this option? If the future spot rate of the Danish kroner is indeed £0.10, what is his profit or loss per unit?
A) No; -£0.01
B) Yes; £0.01
C) Yes; -£0.01
D) Yes; £0.03

Question

Quizplus · Accepted Answer

The Answer of Frank is an option speculator. He anticipates the Danish kroner to appreciate from its current level of £0.09 to £0.10. Currently, kroner call options are available with an exercise price of £0.08 and a premium of £0.03. Should Frank attempt to buy this option? If the future spot rate of the Danish kroner is indeed £0.10, what is his profit or loss per unit?
A) No; -£0.01
B) Yes; £0.01
C) Yes; -£0.01
D) Yes; £0.03

Frank Is an Option Speculator