Question
The spot price of the pound is $2 per GBP. In one year the spot price will either be $3 or $1 per pound. The
The spot price of the pound is $2 per GBP. In one year the spot price will either be $3 or $1 per pound. The risk free rate in the US is 5% and the risk free rate in Britain is 4%. You are offered a call option contract on 10,000 pounds with an exercise price of $2 with expiry date one year from now.
a. What is the value of the call option?
Why does this valuation method work?
b. What is the value of the put option?
Why does this valuation method work?
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Basic Finance An Introduction To Financial Institutions Investments And Management
Authors: Herbert B. Mayo, Michael J Lavelle
13th Edition
0357714741, 978-0357714744
