Suppose It Is January 1990 and the Current Spot Rate

question 17

Multiple Choice

Suppose it is January 1990 and the current spot rate for the DM is $0.5925.The call premium on a call option with an exercise price of $0.5675 is $0.0373.What is the intrinsic value of one DM 62,500 call option?

• A)$2,331.25
• B)$1,562.50
• C)$950.00
• D)$768.75

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Definitions:

Nominal Interest

The stated interest rate on a loan or investment, not accounting for inflation or compounding effects.

Compounded Nominal

Refers to the nominal interest rate which is compounded at certain intervals over a specified period but not necessarily reflecting the actual annual rate of return.

Annuity

An annuity is a financial instrument that provides a consistent series of payments to a person, often serving as a source of income for those who have retired.

Annuitant

The individual entitled to receive payments from an annuity contract, usually during retirement.