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Question 3 Ratu Inc., has constructed a long euro straddle. A call option on euros with an exercise price of $2.20 has a premium of
Question 3 Ratu Inc., has constructed a long euro straddle. A call option on euros with an exercise price of $2.20 has a premium of $.03 per unit. A euro put option with exercise price of $2.20 has a premium of $.02 per unit. Some possible euro values at option expiration are shown in the following table. Value of Euro at Option Expiration $2.00 $2.20 $2.50 $1.60 $2.70 Call Put Net (a) Complete the worksheet and determine the net profit per unit to Ratu Inc. for each possible future spot rate. (15 marks) (b) Determine the break-even point(s) of the long straddle. (5 marks) 120 marks)
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