A Firm Wants to Use an Option to Hedge 12

question 16

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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