Estimate the profit or loss per unit at the end of one year

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Question - The spot rate of the New Zealand dollar is $.77. A call option on New Zealand dollars with a one-year expiration date has an exercise price of $.78 and a premium of $.04. A put option on New Zealand dollars at the money with a one-year expiration date has a premium of $.03. You expect that the New Zealand dollar's spot rate will decline over time and will be $.71 in one year.

a. Today, DII purchased call options on New Zealand dollars with a one-year expiration date. Estimate the profit or loss per unit at the end of one year.

b. Today, DII sold put options on New Zealand dollars at the money with a one-year expiration date. Estimate the profit or loss per unit for Mark at the end of one year. [Assume that the options would be exercised on the expiration date or not at all.]

Reference no: EM133170516

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