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:

Break-even Sales

The level of sales at which a business generates revenue exactly equal to its costs, resulting in no profit or loss.

Consumer Division

A segment within a company focused on selling products and services directly to consumers, as opposed to business or commercial clients.

Break-even Sales

The amount of revenue needed to cover both the variable and fixed costs of a business, resulting in neither profit nor loss.

Absorption Costing

is an accounting method that includes all manufacturing costs (direct materials, direct labor, and both variable and fixed overhead) in the cost of a product.