Draw the Tree for a Call Option on $20,000 with a Strike

question 33

Multiple Choice

Draw the tree for a call option on $20,000 with a strike price of £10,000. The current exchange rate is £1.00 = $2.00 and in one period the dollar value of the pound will either double or be cut in half. The current interest rates are i_$ = 3% and are i_£ = 2%.

---

Definitions:

National Debt

The total amount of money that a country's government has borrowed, by various means.

Loanable Funds

The total amount of capital available for borrowing, often used in the context of the market for loans.

Interest Rates

Interest rates are the percentages charged or paid for the use of money on loans or deposits, influencing economic activities like borrowing and investing.

Loanable Funds

The funds available for borrowing, which are determined by the savings and investments in an economy.