If the implied volatility of a call option is lower than your estimated fair value of the options volatility, your estimate indicates that _____ .

the call option is correctly priced

None of the options are correct

the call option is underpriced

the call option is overpriced

Find the Black-Scholes price of a six-month call option written on 100,000 with a strike price of $1.0000/. The current exchange rate is $1.125/. The U.S. risk-free rate is 2 percent over the period and the euro-zone risk-free rate is 1 percent. The volatility of the underlying asset is 10.5 percent.

The current spot exchange rate is $1.55/ and the 3-month forward rate is $1.60/. Consider a 3-month American call option on 10,000 with a strike price of $1.50/. Immediate exercise of this option will generate a gross profit of

$1,000

Present Value of $1,000

Option is out of the money; so will not be exercised

$500

$0.1309/

$0.1682/

$0.1452/

$0.0016/