a. What is the breakeven investment rate when comparing forward and money market hedges?

b. Compute the bottom-line $ proceeds in the put option hedge. What is the breakeven spot rate when comparing the options and forward hedges? Use WACC to carry cost forward.

3. (Transaction Exposure, 7pts) Trident has concluded a sale of telecommunications equipment to Regency (U.K.). Total payment of 2,000,000 is due in 90 days. Given the following exchange rates, interest rates, options quotes, answer the questions Assumptions Value 90-day A/R in pounds 2,000,000.00 Spot rate, USS per pound (S/) $1.5610 90-day forward rate, USS per pound (S/) $1.5421 3-month U.S. dollar investment rate 4.000% 3-month U.S. dollar borrowing rate 6.0005 3-month UK investment interest rate 4.500 3-month UK borrowing interest rate 8.0005 3-month options on the British pound: Strike rates, USS/pound (S/) Strike rate (S/E) $1.55 Put option premium 1.500% Strike rate (S/E) $1.55 Call option premium 2.500 5 Trident's WACC 9.000% Trident's expected spot rate in 90 days, USS per pound (SL) $1.5431