Use the European Option Pricing Formula to Find the Value

question 63

Multiple Choice

Use the European option pricing formula to find the value of a six-month call option on Japanese yen. The strike price is $1 = ¥100. The volatility is 25 percent per annum; r_$ = 5.5% and r_¥ = 6%.

• A)0.005395
• B)0.005982
• C)$0.006137/¥
• D)None of the above

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Definitions:

Journal Entries

Records of financial transactions in the accounting system that are entered in the general journal.

Liquidity

Liquidity refers to the ease with which assets can be converted into cash without significantly affecting their market price, crucial for meeting short-term obligations.

Asset Turnover Ratio

A financial metric that measures the efficiency of a company in using its assets to generate sales or revenue.

Profitability

A measurement of an entity's ability to generate income in relation to its revenue, assets, or equity.