If the Spot Rate Changes from $1

question 11

Multiple Choice

If the spot rate changes from $1.70/£ to $1.71/£ and there is an option with an initial premium of $0.033/£ and a delta of 0.5, then the new option premium would be:

• A) $0.043/£.
• B) $0.038/£.
• C) $0.005/£.
• D) $1.715/£.

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Definitions:

Sampling Distribution

The probability distribution of a statistic based on all possible random samples that can be drawn from a population.

Sample Mean

The average of a set of numerical values drawn from a larger population.

Confidence Interval

A spectrum of values obtained from sample statistics, which is probable to encompass the value of an unidentified population parameter.

Population Parameter

A numerical characteristic or feature of an entire population, such as its mean or standard deviation.