A Firm Wants to Use an Option to Hedge 12

question 138

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 the above

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Definitions:

Group

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The sum total of all external conditions and influences that affect the life, nature, behavior, and growth of an organism or organization.

Extraverted

Refers to an outgoing, socially confident personality type characterized by high levels of enthusiasm, energy, and a tendency to seek stimulation in the company of others.

Power Tactics

Strategies or methods employed by individuals or groups to exert control or influence over others.