Draw the payoff diagram to illustrate the payoff

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Reference no: EM131952307

Multinational Finance Homework -

Q1. Assume you have purchased a June call option on British pounds: the strike price is $1.30/£; the option premium is $0.10/£; and it is European style.

1) Please fill out the blanks in the table.

Spot rate at maturity (in June)	Exercise or not?	Net profit or payoff
1.15
1.20
1.25
1.30
1.35
1.40
1.50
1.60

2) Where is the break-even point?

3) Please draw the payoff diagram to illustrate the payoff. Make sure to mark down the strike price, the break-even point, and the moneyness (in the money, at the money, and out of the money) on the diagram.

Q2. Assume you have purchased a June put option on British pounds: the strike price is $1.30/£; the option premium is $0.10/£; and it is European style.

1) Please fill out the blanks in the table.

Spot rate at maturity (in June)	Exercise or not?	Net profit or payoff
1.10
1.15
1.20
1.25
1.30
1.35
1.40
1.45

2) Where is the break-even point?

Reference no: EM131952307

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