Determine the speculator profit

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Question - A speculator is considering the purchase of five three-month Japanese yen call options (12.5million yen per contract) with a strike price of 97 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 96 cents. The speculator believes the yen will appreciate to $ 1.00 per 100 yen over the next three months. As the speculator's assistant, you have been asked to prepare the following:

a. Determine the speculator's profit if the yen appreciates to $1.00/100 yen.

b. Determine the speculator's profit if the yen only appreciates to the forward rate.

c. Determine the future spot price at which the speculator will only break even.

Reference no: EM133173965

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