3. AMERI-Corp, needs to buy, then pay 6,000,000 Pounds (P) in 270 days ( -.75 yr) to a European firm. AMERI-Corp is worried about exchange rate risk on the future US$ value of this payable and wants to compare a Money Market or Option hedge Spot rate today is $1.278/P ANNUAL deposit (investing) rate is: Europe = 3,0%; USA = 4,4% ANNUAL borrowing rate is: Europe = 4.4%; USA = 5.6% A CALL option is available with 270-days to maturity with a Strike price of $1.275 / P with a premium of $.025 / P A PUT option is available with 270-days to maturity with a Strike price of 51.28/P with a premium of 5.022/P AMERI-Corp forecasted the *270-day future expected Spot Rate as follows: $1.26/P 15% prob. $1.272/P 30% prob. $1.28/P 40% prob. $1.29/ P 15% prob. QUES. 3-A-B-C Estimate the amounts that AMERI-Corp can expect by hedging among: 3-A 10pts MONEY MARKET hedge equivalent amount 3-B) ) Money Market Option % 7pts 4. What is the effective annual interest rate on NewCo's 3-yr $18.0 million debt issue in the USA at LIBOR + 1.47 Upfront origination fee = 1.75%, if LIBOR stayed steady at 2.60% for all 3 years of floating rate loan? Interest paid annually at yr-end. T=0 Loan Cash Flow T= 1 Loan Cash Flow T=2 Loan Cash Flow T= 3 Loan Cash Flow 3. AMERI-Corp, needs to buy, then pay 6,000,000 Pounds (P) in 270 days ( -.75 yr) to a European firm. AMERI-Corp is worried about exchange rate risk on the future US$ value of this payable and wants to compare a Money Market or Option hedge Spot rate today is $1.278/P ANNUAL deposit (investing) rate is: Europe = 3,0%; USA = 4,4% ANNUAL borrowing rate is: Europe = 4.4%; USA = 5.6% A CALL option is available with 270-days to maturity with a Strike price of $1.275 / P with a premium of $.025 / P A PUT option is available with 270-days to maturity with a Strike price of 51.28/P with a premium of 5.022/P AMERI-Corp forecasted the *270-day future expected Spot Rate as follows: $1.26/P 15% prob. $1.272/P 30% prob. $1.28/P 40% prob. $1.29/ P 15% prob. QUES. 3-A-B-C Estimate the amounts that AMERI-Corp can expect by hedging among: 3-A 10pts MONEY MARKET hedge equivalent amount 3-B) ) Money Market Option % 7pts 4. What is the effective annual interest rate on NewCo's 3-yr $18.0 million debt issue in the USA at LIBOR + 1.47 Upfront origination fee = 1.75%, if LIBOR stayed steady at 2.60% for all 3 years of floating rate loan? Interest paid annually at yr-end. T=0 Loan Cash Flow T= 1 Loan Cash Flow T=2 Loan Cash Flow T= 3 Loan Cash Flow