Question
Consider a call option on euro with a strike price of$ 1.10/ in the following economy: Current spot exchange rate=$ 1.01/ U.S. dollar interest rate=
Consider a call option on euro with a strike price of$ 1.10/ in the following economy:
Current spot exchange rate=$ 1.01/
U.S. dollar interest rate= 3 % per annum
Euro interest rate = 2 % per annum
Time until expiration = 9 months
Standard deviation of the spot rate= 12%
Compute the fair price of this euro call using the Black-Scholes option pricing model.
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Fundamentals of Financial Management
Authors: Eugene F. Brigham, Joel F. Houston
Concise 6th Edition
324664559, 978-0324664553
