Find the Dollar Value Today of a 1-Period At-The-Money Call

question 95

Multiple Choice

Find the dollar value today of a 1-period at-the-money call option on €10,000. The spot exchange rate is €1.00 = $1.25. In the next period, the euro can increase in dollar value to $2.00 or fall to $1.00. The interest rate in dollars is i_$ = 27.50%; the interest rate in euro is i_€ = 2%.

• A)$3,308.82
• B)$0
• C)$3,294.12
• D)$4,218.75

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Definitions:

Rapid Eye Movement

A phase of sleep characterized by rapid movements of the eyes, low muscle tone, and the propensity to dream vividly.

Sigmund Freud

A neurologist from Austria who established psychoanalysis as a technique for addressing mental disorders through conversational therapy between a psychoanalyst and their patient.

Non-Rapid Eye Movement

A phase of sleep characterized by slower brain waves, decreased body movement, and the absence of rapid eye movements, contrasting with REM sleep.

Autonomic Activity

Autonomic Activity encompasses bodily functions that are involuntary, such as heartbeat, digestion, and breathing, controlled by the autonomic nervous system.