Problem 8

Intro

Tesla exports cars to many countries, including China. The company expects to receive 18 million yuan () in one year from its exports.

The firm expects the following exchange rate scenarios and probabilities:

Scenario	Spot rate in one year	Probability
A	$0.169	0.2
B	$0.176	0.5
C	$0.183	0.3

A put option on yuan expiring in one year costs $0.0016 per yuan and has an exercise price of $0.176 per yuan.

Attempt 1/6 for 10 pts.

Part 1

What is the expected value of the receivables in one year with the put option hedge (in $)?