Spot rate-estimate the profit or loss per unit

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The spot rate of the New Zealand dollar is $.70. A call option on New Zealand dollars with a 1-year expiration date has an exercise price of $.71 and a premium of $.02. A put option on New Zealand dollars at the money with a 1-year expiration date has a premium of $.03. You expect that the New Zealand dollar's spot rate will rise over time and will be $.75 in 1 year.

a) Today, Jarrod purchased call options on New Zealand dollars with a 1-year expiration date. Estimate the profit or loss per unit for Jarrod at the end of 1 year. [Assume that the options would be exercised on the expiration date or not at all]

b) Today, Laurie sold put options on New Zealand dollars at the money with a 1-year expiration date. Estimate the profit or loss per unit for Laurie at the end of 1 year. [Assume that the options would be exercised on the expiration date or not at all]

Reference no: EM13846721

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