Find the Value of a One-Year Call Option on €10,000

question 38

Multiple Choice

Find the value of a one-year call option on €10,000 with a strike price of $15,000. In one year the exchange rate (currently S₀($/€) = $1.50/€) can increase by 60% or decrease by 37.5% . The current one-year interest rate in the U.S. is i_$ = 4% and the current one-year interest rate in the euro zone is i_€ = 4%.

• A)€1,525.52
• B)$3,328.40
• C)$4,992.60
• D)€2,218.94
• E)None of the above

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Definitions:

Yellowfin Tuna

A species of tuna known for its yellow fins and high nutritional value, often used in sashimi and other dishes.

Marginal Cost

The price of creating an additional unit of any given product or service.

Profit-Maximizing Monopoly

A monopoly that adjusts its output level to where marginal costs equal marginal revenues to achieve the highest possible profit.

Additional Unit

In economics, refers to the next item or unit of production, used in analyzing the costs and benefits of producing one more unit of a good or service.