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A Put Option Exists on Dollars with an Exercise Price

question 44

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A put option exists on dollars with an exercise price of £0.55, a 90-day expiration date, and a premium of £0.02 per unit. You plan to purchase options to cover your future receivables of $700,000 pounds in 90 days. You will exercise the option in 90 days (if at all) . You expect the spot rate of the dollar to be £0.54 in 90 days. Determine the amount of dollars to be received, after deducting payment for the option premium.


Definitions:

New Ventures

Refers to the initiation of new business activities or startup companies.

Capital Improvements

Expenditures relating to the upgrade, enhancement, or expansion of physical assets, increasing their useful life or value.

Expansion

Expansion refers to the phase of business growth and economic development where a company or economy sees an increase in scale, output, or market reach.

Negative NPV

A condition where the net present value of all cash flows associated with a project or investment is negative, indicating that it is not financially viable.

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