Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

What is the premium cost of option at the end of 90 days if a options market hedge is used? Krystal is a U.S.-based company

image text in transcribed

What is the premium cost of option at the end of 90 days if a options market hedgeis used?

Krystal is a U.S.-based company which manufactures, sells, and installs water purification equipment. The company just sold a system to the City of Nagasaki, Japan. The sale was priced in yen at 15,000,000, with payment due in 3 months. Additional information: Krystal's Japanese competitors are currently borrowing yen from Japanese banks at a spread of 2% above the Japanese money rate. Krystal's weighted average cost of capital is 18%, and the company wishes to protect the dollar value of this receivable. Three-month options from Kyushu Bank: * Call option on 15,000,000 at exercise price of 119.778/$ : a 1.6% premium. Put option on 15,000,000, at exercise price of 117.801/$ : a 4.6% premium

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Bitcoin Mining The New Gold Rush Bitcoin Mining Is The Future

Authors: Sam Sutton

1st Edition

1985654717, 978-1985654716

More Books

Students also viewed these Finance questions