One year ago you sold a call option on 1 million pounds, Ask an Expert

Finance

One year ago, you sold a call option on 1 million pounds with an expiration date of one year. You received a premium on the call option of $.02 per unit. The exercise price was $1.21. Assume that one year ago, the spot rate of the pound was $1.551, the one-year forward rate exhibited a premium of 4.5%, and the one-year futures price was the same as the one-year forward rate. From one year ago to today, the pound appreciated against the dollar by 3 percent. Today the call option will be exercised (if it is feasible for the buyer to do so).

a. Determine the total dollar amount of your profit or loss from your position in the call option.

b. Now assume that instead of taking a position in the call option one year ago, you sold a futures contract on 1 million pounds with a settlement date of one year. Determine the total dollar amount of your profit or loss.

View complete question

Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M9866276

Have any Question?Write your Review or question?

Related Questions in Basic Finance

Question discuss how efficient the us financial markets are

Question: Discuss how efficient the U.S. financial markets are in pricing financial securities. (Consider such questions as, "Are security prices reliable?", "What factors promote or reduce pricing efficiency?", and "How ...

Roll tide inc has 10000 shares of common stock outstanding

Roll Tide, Inc. has 10,000 shares of common stock outstanding at a price of $18 a share. The firm's beta is 1.3 and the market risk premium is 6.5%. The Treasury bill rate is 3.5%. There are 9,000 shares of preferred sto ...

Company b has a beta of 061 the rate on australian treasury

Company B has a beta of 0.61, the rate on Australian Treasury Bonds is 4.75% and the expected return for the S&P/ASX 200 Index is 20.35%. Required: a) Calculate the required return (ie Expected Return) for Pacific Blue L ...

Kings department store is contemplating the purchase of a

King's Department Store is contemplating the purchase of a new machine at a cost of $36,686. The machine will provide $4,900 per year in cash flow for fourteen years. King's has a cost of capital of 12 percent. calculate ...

What is the difference between earnings per share and pe

What is the difference between Earnings per Share and P/E ratio? What do they measure?

Question - you purchase a machine for 100000 such machine

Question - You purchase a machine for $100,000. Such machine has a 3-year MACRS classification. If the machine is sold at the end of the second year for $45,000, what are the after-tax proceeds from the sale, assuming yo ...

Is there a particular capital structure that maximizes the

Is there a particular capital structure that maximizes the value of the firm? Explain.

Why should investors who identify positive-npv trades be

Why should investors who identify positive-NPV trades be skeptical about their findings if they don't inside information or a competitive advantage? What return should the average investor expect to receive?

A work-at-home opportunity is available in which you will

A work-at-home opportunity is available in which you will receive 3 percent of the sales for customers you refer to the company. The cost of your "franchise fee" is $600. How much would your customers have to buy to cove ...

Consider the balance sheet in millions of for first

Consider the balance sheet (in millions of $) for First Integrated Bank: FY 2017 AMOUNT DURATION ASSETS $790 MILLION 7.5 YEARS LIABILITIES $650 MILLION 1.5 YEARS What is the FIB's duration gap? 4.9 years 5.4 years 6.0 ...

4,153,160 Questions Asked
13,132 Experts
2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Recent Questions

Ask Basic Finance Expert