The Same Call from the Last Question (A 1-Period Call

question 44

Essay

The same call from the last question (a 1-period call option on €10,000 with a strike price of $12,500. could also be thought of as a 1-period at-the-money put option on $12,500 with a strike price of €10,000.
As before, 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%.
Draw the binomial tree for this putoption.

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Definitions:

Balanced Three-Phase System

A three-phase electrical system where all three phases carry equal currents and have the same voltage magnitude but are out of phase with each other by 120 degrees.

Single-Phase

An electrical power system that uses only two wires (one power wire and one neutral) to deliver alternating current.

Conductors

Materials or objects that allow the flow of electrical current in one or more directions.

Kilovolt-Ampere

A unit of apparent power in an electrical circuit, equivalent to 1,000 volt-amperes, commonly used in the electricity sector.