Complete Hedging Problem using following given info: Value of Tek's receivables = 4,000,000 Payable due in =
Question:
Complete Hedging Problem using following given info:
Value of Tek's receivables = €4,000,000
Payable due in = 90 days
Given: ▪ Spot rate is $1.2000/€
▪ 3-month forward rate is $1.2180/€
▪ Tek's cost of capital is 9.8%
▪ Tek's short-term investment rate is 5.25% p. a.
▪ 3-month euro borrowing rate is 4.2% p.a.
▪ 3- month euro put option strike price = $1.2200/€
▪ Option premium = 3.4%
▪ The expected spot rate can be estimated from the following information:
Possible Spot Rate in 90 days Probability
$1.2175/€ 25%
$1.2330/€ 60%
$1.1842/€ 15%
Advanced Accounting
ISBN: 978-0538480284
11th edition
Authors: Paul M. Fischer, William J. Tayler, Rita H. Cheng