A Firm Wants to Use an Option to Hedge 12

question 80

Multiple Choice

A firm wants to use an option to hedge 12.5 million in receivables from New Zealand firms. The premium is $.03. The exercise price is $.55. If the option is exercised, what is the total amount of dollars received (after accounting for the premium paid) ?

• A) $6,875,000
• B) $7,250,000
• C) $7,000,000
• D) $6,500,000
• E) None of these are correct.
• Answer Key

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Definitions:

Epiblast

A layer of cells derived during the early development of an embryo, giving rise to all three primary germ layers.

Fertilization

Process that begins with the penetration of the secondary oocyte by the spermatozoon and is completed with the fusion of the male and female pronuclei.

Implantation

The process by which a fertilized egg attaches to the lining of the uterus, beginning the stages of pregnancy.

Chorionic Villi

Finger-like projections from the chorion that extend into the uterine wall, facilitating nutrient exchange between mother and fetus.