(11) The time dynamics of the Euro-dollar exchange rate is dx = 0.11X dt +0.06XdW. The dollar-risk-free rate is 0.04 and the Euro-risk-free rate is 0.02. The current price of a Euro is $1.32. A dollar-denominated European call option will pay (X(1) - 1.35)* at the end of one year. What should be its current price? id I n(1.3271 The following answers are proposed. In(1.32/1.35)+(0.04-0.02-0.5(0.06) In[1.32/1.35)+(0.04-0.02+0.5(0.06 ) (a) 1.320(-d) + 000(-d2), where di = - 0.06 0.06 (b) 1.3206-d1) + 1.350(-d), where di In(1.32/1.35)+(004 -0.02+0.5(0.06)2) do - In(1.32/1.35)+(0.04-0.02-0.5(0.06)2) 0.06 0.06 (c) 1.32. d.) - 1.35 (d) whered, ln(1.32/1.35)+(0.04 -0.02+0.5(0.062). In(1.32/1.35)+(004-0.02-0.50.062) 0.06 (d) 1.320(-d) - .01680(-d2), where d = _ In(1.32/1.35)+(0.04-0.02+0.5(0.062) In(1.32/1.35)+(0.04-0.02-0.5(0.06)2) 0.06 0.06 (e) None of the above 0.06 (11) The time dynamics of the Euro-dollar exchange rate is dx = 0.11X dt +0.06XdW. The dollar-risk-free rate is 0.04 and the Euro-risk-free rate is 0.02. The current price of a Euro is $1.32. A dollar-denominated European call option will pay (X(1) - 1.35)* at the end of one year. What should be its current price? id I n(1.3271 The following answers are proposed. In(1.32/1.35)+(0.04-0.02-0.5(0.06) In[1.32/1.35)+(0.04-0.02+0.5(0.06 ) (a) 1.320(-d) + 000(-d2), where di = - 0.06 0.06 (b) 1.3206-d1) + 1.350(-d), where di In(1.32/1.35)+(004 -0.02+0.5(0.06)2) do - In(1.32/1.35)+(0.04-0.02-0.5(0.06)2) 0.06 0.06 (c) 1.32. d.) - 1.35 (d) whered, ln(1.32/1.35)+(0.04 -0.02+0.5(0.062). In(1.32/1.35)+(004-0.02-0.50.062) 0.06 (d) 1.320(-d) - .01680(-d2), where d = _ In(1.32/1.35)+(0.04-0.02+0.5(0.062) In(1.32/1.35)+(0.04-0.02-0.5(0.06)2) 0.06 0.06 (e) None of the above 0.06