Baker Street. Arthur Doyle is a currency trader for Baker Street, a private investment house in London. Baker Street's clients are a collection of wealthy private investors who, with a minimum stake of 220,000 each, wish to speculate on the movement of currencies. The investors expect annual returns in excess of 25%. Although officed in London, all accounts and expectations are based in U.S. dollars. Arthur is convinced that the British pound will slide significantly----possibly to $1.3200/ ----- in the coming 30 to 60 days. The current spot rate is $1.4258/ . Arthur wishes to buy a put on pounds which will yield the 25% return expected by his investors. Which of the following put options, .

Strike Price ($/pound) Maturity (days) Premium ($/pound) 1.36 30 0.00081 1.34 30 0.00021 1.32 30 0.00004 1.36 60 0.00333 1.34 60 0.00151 1.32 60 0.00061

would you recommend he purchase? Prove your choice is the preferable combination of strike price, maturity, and up-front premium expense.