The existing spot rate of the Canadian dollar is $.82. The premium on a Canadian dollar call option is $.04. The exercise price is $.81. The option will be exercised on the expiration date if at all. If the spot rate on the expiration date is $.87, the profit as a percent of the initial investment (the premium paid) is:
A) 0 percent.
B) 25 percent.
C) 50 percent.
D) 150 percent.
E) none of the above

Question

Quizplus · Accepted Answer

The net profit per unit is: $.87 - $.81 - $.04 = $.02. The net profit per unit as a percent of the initial investment per unit is: $.02/$.04 = 50%.

The Existing Spot Rate of the Canadian Dollar Is