Use the following information to answer question 1 to 3: Walmart is considering the purchase of...
Use the following information to answer question 1 to 3:
Walmart is considering the purchase of British Pound call options (contract size: £62,500) with a strike price $1.31/£. The premium is $0.025/£.
1.If the spot at expiration is $1.28/£, what is the Walmart’s profit?
a. $1,875 gain
b. $1,562.5 loss
c. $312.5 gain
d. $3,437.5 loss
2. If the spot at expiration is $1.33/£, what is the Walmart’s profit?
a. $312.5 loss
b. $1,562.5 loss
c. $1,250 gain
d. $2,812.5 gain
3.If the spot at expiration is $1.36/Peso, what is the Walmart’s profit?
a. $1,562.5 loss
b. $3,125 gain
c. $1,562.5 gain
d. $3,437.5 gain
Homework Answers
In 1. Case the call option will lapse as the exercise price (1.28)is below the strike price given (1.31).only premium loss will be there calculating as loss of -
B- 62500*.025=(1562.25)
In 2.case the call option will exercise - A
In 3.case the exercise price given is in peso which is not sufficient.
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