Calculate the amount of pounds of the call option

Reference no: EM132048096

Question: The pound spot rate is currently S = 50.1$ / £ . It is projected that the spot rate will either increase to 70.1$ Su = if US economic conditions worsen over the next year, or decline to 40.1$ Sd = if conditions improve. Eurodollar bank accounts require 1$ B = to set up and are paying zero interest. Call options on the pound currently have a strike price of X = 55.1$ .

a) Calculate the amount of pounds, NS , and the amount of dollars in the bank account, NB , required to replicate the payoffs of the call option.

b) What is the value, V, of the replicating portfolio?

c) What is the value, c, of the call option? Why must it equal V?

Reference no: EM132048096

Questions Cloud

What makes digital forensics a science : List the ways suspects use the Internet in computer related crimes discussed in the lecture notes.

What is the stock price today on the stock : What is the stock price today assuming a required return of 12 percent on this stock? (Do not round intermediate calculations and round your answer.

What happens to excess pyruvate after heavy exercise : What happens to excess pyruvate after heavy exercise?

How is the rate of glycolysis controlled : Mention the reaction steps and corresponding enzymes that are subjected to regulation and the biochemical and thermodynamic basis of glycolysis control.

Calculate the amount of pounds of the call option : Calculate the amount of pounds, NS , and the amount of dollars in the bank account, NB , required to replicate the payoffs of the call option.

Fragmentation and release of dna as cells decompose : Consider the ubiquitous occurrence of bacteria in nature, along with the constant fragmentation and release of DNA as cells decompose

Research the case law and statutory law behind self-defense : Research the case law and statutory law behind self-defense and the use of deadly force. What does the case law reveal that an average citizen can use.

Suggestions to get the answers : In HIT205 DeVry coding round table, is there any helpful suggestions to get the answers.

What should be potash share price : Potash Corporation of Saskatchewan Inc. produces and sells fertilizers and related industrial and feed products worldwide.

User Account

All Pages