Find the call premium for a volatility

Reference no: EM13721379

Please calculate the right answer of the following Problem

Problem- The current price of gold is $1,200 for each ounce (oz). Use the Currency Derivative Calculator spreadsheet to answer the following questions regarding a call on 1 oz of gold with a strike of $1,400 that matures in three months. Assume interest rates for gold and the US$ are zero. Note: You will need to use the spreadsheet option calculator to answer a and b.

Part 1-What is the call premium for a volatility of 20%?

Part 2- What is the call premium for a volatility of 21%? How did the option value change as the volatility increased?

Part 3- Using the option premium from part 1, what is the breakeven gold price for the call?

Part 4- If you buy this option for the premium from part 1 and then the spot price of gold immediately increases by 1% to $1,212, how would the value of your option change (assume 20% volatility)? What is you profit in percentage terms?

Part 5- If you are convinced the gold price is about to rise by 1% and you have exactly $12,000, would you make more profit by (i) buying 10oz of gold or (ii) spending all $12,000 to buy call options at the premium you calculated in part (a)?

I want experts help to find the call premium for a volatility.

Reference no: EM13721379

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