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:

Aversion Therapy

A behavioral treatment method that uses unpleasant stimuli to reduce or eliminate undesirable behaviors.

Classical Conditioning

A learning practice in which the consistent linkage of two stimuli results in a response that, initially generated by the second stimulus, is ultimately generated by the first stimulus.

Alcohol Abuse

The excessive and harmful consumption of alcohol, leading to physical, social, and psychological consequences.

Anxiety Hierarchy

A list or ranking of stimuli or situations that provoke anxiety in an individual, ordered from the least to the most anxiety-inducing.