Suppose the Current Exchange Rate Is $1

question 41

Multiple Choice

Suppose the current exchange rate is $1.62/£,the interest rate in the united states is 5.25%,the interest rate in the United Kingdom is 4%,and the volatility of the $/£ exchange rate is 18%.Using the Black-Scholes formula,the price of a six-month European call option on the British pound with a strike price of $1.60/£ will be closest to:

• A)$0.040/£
• B)$0.059/£
• C)$0.078/£
• D)$0.097/£

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Definitions:

Reject

In statistical testing, to dismiss the null hypothesis based on evidence that supports the alternative hypothesis.

H0

The notation for the null hypothesis in statistical hypothesis testing, representing no effect or no difference.

Reject

In statistical analysis, to refuse the null hypothesis, concluding there is sufficient evidence to support a significant effect or difference.

H0

Stands for the null hypothesis in statistical hypothesis testing, representing the assumption that there is no significant difference or effect.