Determine the future spot price

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Mr. Stanford is a speculator who is considering the purchase of eight three-month Japanese yen call options. The option has a striking price of 96 cents per 100 yen. The premium is 1.35 cents per 100 yen. The spot price is 95.28 cents per 100 yen and the 90-day forward rate is 95.71 cents. Mr. Stanford believes that the yen will appreciate to $1.00 per 100 yen over the next three months.

Required:

Prepare the following:

i. Determine his profit if the yen appreciates to $1.00/100 yen.

ii. Determine his profit if the yen only appreciates to the forward rate.

iii. Determine the future spot price at which he will only break even.

Reference no: EM132816075

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