Value a 1-year call option written on £10,000 with an exercise price of $2.00 = £1.00.The spot exchange rate is $2.00 = £1.00; The U.S.risk-free rate is 5% and the U.K.risk-free rate is also 5%.In the next year,the pound will either double in dollar terms or fall by half (i.e.u = 2 and d = ½).Hint: H = ⅔.
A)$6,349.21
D)None of the above

Question

Value a 1-year call option written on £10,000 with an exercise price of $2.00 = £1.00.The spot exchange rate is $2.00 = £1.00; The U.S.risk-free rate is 5% and the U.K.risk-free rate is also 5%.In the next year,the pound will either double in dollar terms or fall by half (i.e.u = 2 and d = ½).Hint: H = ⅔.
A)$6,349.21 
D)None of the above

Quizplus · Accepted Answer

The Answer of Value a 1-year call option written on £10,000 with an exercise price of $2.00 = £1.00.The spot exchange rate is $2.00 = £1.00; The U.S.risk-free rate is 5% and the U.K.risk-free rate is also 5%.In the next year,the pound will either double in dollar terms or fall by half (i.e.u = 2 and d = ½).Hint: H = ⅔.
A)$6,349.21 
D)None of the above

Value a 1-Year Call Option Written on £10,000 with an Exercise