What is the break-even exchange rate for the put

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We have a European Put option for €10,000. The premium is 5 cents ($0.05) per euro. The exercise price is $1.30/ €1.00 and expiration is one year from today. Suppose that the spot rate at expiration is $1.34/ €1.0000

Problem a) Would you exercise the option?

Problem b) What would be the exercise value of the option?

Problem c) What is the break-even exchange rate for the put (disregarding time-value of money)?

Problem d) Note that, usually, we disregard time-value of money when computing the break-even exchange rate for options. But assume you had to borrow at 10% to pay for the option. What would your break-even point be then?

Reference no: EM132811595

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