12. A US investor holds German zero bonds with a face value of EUR 20m and a remaining maturity of half a year. To (partly) hedge the associated foreign exchange risk, he entered a forward sales contract on EUR 10m at a rate of Fot+0.5y = 1.28. Furthermore, he holds a put option on EUR 10m with strike price X = 1.30 maturing on the same day as the bonds. Given the p.a. interest rates r = 0.25% and r* = 1.00%, the p.a. exchange rate volatility of 10%, and the current spot rate USD/EUR 1.30, answer the following questions: (a) What is the current USD value of the portfolio? To compute the value of the option use a one-step binomial model. (b) What is the USD/EUR exchange rate exposure of the portfolio? (c) Use the binomial tree to verify that your exposure calculations are correct. 12. A US investor holds German zero bonds with a face value of EUR 20m and a remaining maturity of half a year. To (partly) hedge the associated foreign exchange risk, he entered a forward sales contract on EUR 10m at a rate of Fot+0.5y = 1.28. Furthermore, he holds a put option on EUR 10m with strike price X = 1.30 maturing on the same day as the bonds. Given the p.a. interest rates r = 0.25% and r* = 1.00%, the p.a. exchange rate volatility of 10%, and the current spot rate USD/EUR 1.30, answer the following questions: (a) What is the current USD value of the portfolio? To compute the value of the option use a one-step binomial model. (b) What is the USD/EUR exchange rate exposure of the portfolio? (c) Use the binomial tree to verify that your exposure calculations are correct