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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
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 240,000 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 = 1.00-in the coming 30 to 60 days. The current spot rate is $1.4258 = 1.00. Arthur wishes to buy a put on pounds, which will yield the 25% return expected by his investors. Which of the following put options,, would you recommend he purchase? Prove your choice is the preferable combination of strike price, maturity, and up-front premium expense. Because his expectation is for "30 to 60 days" he should confine his choices to the 60 -day options to be sure and capture the timing of the exchange rate change. (Select from the drop-down menu.) The return on investment (ROI) at the strike price of $1.36/ is %. (Round to the nearest integer.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Strike Price Maturity $1.36 = 1.00 30 days Premium $0.00081 per $1.34 = 1.00 30 days $0.00021 per $1.32 1.00 30 days $0.00004 per $1.36 = 1.00 60 days $0.00332 per $1.34 = 1.00 60 days $0.00151 per $1.32 = 1.00 60 days $0.00062 per
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