Question
There is not enough information to answer this question. Instruction 10.1: Use the information for the following problem(s). Central Valley Transit Inc. (CVT) has just
There is not enough information to answer this question.
Instruction 10.1: Use the information for the following problem(s). Central Valley Transit Inc. (CVT) has just signed a contract to purchase light rail cars from a manufacturer in Germany for euro 3,000,000. The purchase was made in June with payment due six months later in December. Because this is a sizable contract for the firm and because the contract is in euros rather than dollars, CVT is considering several hedging alternatives to reduce the exchange rate risk arising from the sale. To help the firm make a hedging decision you have gathered the following information. times The spot exchange rate is $1.250/euro times The six month forward rate is $1.22/euro times CVT's cost of capital is 11% times The Euro zone 6minusmonth borrowing rate is 9% (or 4.5% for 6 months) times The Euro zone 6minusmonth lending rate is 7% (or 3.5% for 6 months) times The U.S. 6minusmonth borrowing rate is 8% (or 4% for 6 months) times The U.S. 6minusmonth lending rate is 6% (or 3% for 6 months) times December call options for euro 750,000; strike price $1.28, premium price is 1.5% times CVT's forecast for 6minusmonth spot rates is $1.27/euro times The budget rate, or the highest acceptable purchase price for this project, is $3,900,000 or $1.30/euro Refer to Instruction 10.1. The cost of a put option to CVT would be:
A) $55,388.
B.$52,500.
C.$58,275.
D.There is not enough information to answer this question.
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