Determine the future spot price

Reference no: EM133491756

Case: A speculator is considering the purchase of 2269192 for three-month Japanese yen put options with the following information:

The strike price of the put option 96 cents per 100 yen

Put premium 1.35 cents per 100 yen

The spot price is 95.28 cents per 100 yen

The 90-day forward rate is 93.15 cemts per 100 yen

JPY option contract size JPY1,000,000

The speculator believes the yen will depreciate to 91 cents per 100 yen over the next three months. As the speculator's assistant, you have been asked to prepare the following:

Question 1: Determine the premium of the option contract(s).

Question 2: Determine the speculator's profit/loss if the yen depreciates to $0.91/100 yen.

Question 3: Determine the speculator's profit/loss if the yen deppreciates to the forward rate.

Question 4: Determine the future spot price at which the speculator will only break even. Explain.

Reference no: EM133491756

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