Question
Jason Pharmaceuticals sources materials from a British affiliate and is to make a payment of GBP 500,000 in three months. Jasons treasurer is considering the
Jason Pharmaceuticals sources materials from a British affiliate and is to make a payment of GBP 500,000 in three months. Jasons treasurer is considering the use of GBP call options to protect the payables. GBP calls with three months to maturity and a strike price of USD 1.60 are available with a premium of USD 0.035. Disregard financing costs for the option premium. You are requested to consider the following (equally likely) values of GBP in three months: 1.50, 1.55, 1.60, 1.65. Estimate the mean and standard deviation of the cost of payables assuming a hedge with options is used. (use $x,xxx and $x,xxx)
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