Assume That the Dollar-Euro Spot Rate Is $1 $F _ { T } = S _ { t } e ^ { \left( r _ { \$ } - r _ { € } \right) T } = \$ 1.28 e ^ { .01 \times .5 } = \$ 1.2864$

question 61

Multiple Choice

Assume that the dollar-euro spot rate is $1.28 and the six-month forward rate is $F _ { T } = S _ { t } e ^ { \left( r _ { \$ } - r _ { € } \right) T } = \$ 1.28 e ^ { .01 \times .5 } = \$ 1.2864$
.The six-month U.S.dollar rate is 5% and the Eurodollar rate is 4%.The minimum price that a six-month American call option with a striking price of $1.25 should sell for in a rational market is

• A)0 cents
• B)3.47 cents
• C)3.55 cents
• D)3 cents

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