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Intrinsic value and time value of the call

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Reference no: EM132641678

1. Today is the expiration day of a put option on the euro that  you purchased three months ago when the spot rate was $1.1360/€. The strike rate on the option is $1.1340/€ and the premium was $0.0340/€.

a. What were the intrinsic value and the time value of the call at the time of purchase?

b. If today's spot rate is $1.1320/€, would you exercise? How much would your payoff be (payoff is value of option position at expiration)? How much would your profit/loss be?

c. Repeat part b above assuming today's spot rate is $1.1490/€.

d. At what expiration spot rate would you break even?

2. Today is the expiration day of a call option on the Swiss franc that you purchased three months ago when the spot rate was $1.0680/SF.

The strike rate on the option is $1.0690/SF and the premium was $0.0300/SF.

a. What were the intrinsic value and the time value of the put at the time of purchase?

b. If today's spot rate is $1.0603/SF, would you exercise? How much would your payoff be? How much would your profit/loss be?

c. Repeat part b under the assumption that today's spot rate is $1.0880/SF.

d. At what expiration spot rate would you break even?

Reference no: EM132641678

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