International Financial Management 2nd Edition by Geert Bekaert ,Robert Hodrick

تمرين 24

On April 28, 1995, the Paine Webber Group introduced a new type of security on the NYSE: U.S. dollar increase warrants on the yen. At exercise, each warrant entitled the holder to an amount of U.S. dollars calculated as
Greater of (i) 0 and
(ii) $100 - [$100 × (¥ 83.65/ $ /Spot rate)]
The "spot rate" in the formula refers to the yen / dollar rate on any day during the exercise period, which extended until April 28, 1996. The 1-year forward rate on April 28 was ¥79.72/ $, and the spot rate was ¥83.65/$.
a. What view on the future yen dollar rate do investors in this security hold
b. This security was issued at a price of $5.50. To see whether the security is fairly priced, which option prices would you want to examine