You are the treasurer of Arizona Corporation and must decide how to hedge (if at all) future receivables of 350,000 Australian dollars (A$) 180 days from now. Put options are available for a premium of $.02 per unit and an exercise price of $.50 per Australian dollar. The forecasted spot rate of the Australian dollar in 180 days is:
|
Future Spot Rate
|
Probability
|
|
$.46
|
10%
|
|
$.48
|
35%
|
|
$.52
|
55%
|
What is the probability that the put option will be exercised (assuming Arizona purchased it)?
|
a.
|
10%.
|
|
b.
|
35%.
|
|
c.
|
55%.
|
|
d.
|
45%.
|