What is the payoff of a collar involving a long call

Assignment Help Finance Basics
Reference no: EM132035728

Kelvin just purchased £15.2 million goods from a British exporter on credit due 90 days from today. The spot exchange rate is $1.21/£. The 90-day interest rates in the U.S. and the UK is 1 and 1.5 percent respectively. The 90-day forward rate on pound is $1.2090/£. A 3-month call at strike price of $1.20/£ can be purchased at a premium of $0.016. A 3-month put option at strike price of $1.20/£ can be purchased at a premium of $0.018 and can be sold at a premium of $.017. Assuming in 90 days the exchange rate will be either $1.20/£ or $1.25/£. What is the payoff of a collar involving a long call and short put at the same strike price of $1.20/£?

Reference no: EM132035728

Questions Cloud

How do you solve the portfolio weights of each stock : If you own 350 shares of Xerox at $18.84, 450 shares of Qwest at $9.65, and 250 shares of Liz Claiborne at $46.23. How do you solve the portfolio weights of eac
Explain the role of domain name system : Explain The role of Address Resolution Protocol (ARP). What is its vulnerability? Explain The role of Domain Name System (DNS). What is its vulnerability?
Banks size by looking at a balance sheet : What would be some indications for a banks size by looking at a balance sheet?
How are the programs funded : How are the programs funded? What are the pros and cons of having children raise funds for these sports?
What is the payoff of a collar involving a long call : What is the payoff of a collar involving a long call and short put at the same strike price of $1.20/£?
How the selected product could be used by your client : Discussion of how the selected product could be used by your client to support its cybersecurity objectives by reducing risk, increasing resistance.
Why do the numbers of overweight or obese children continue : Identify issues related to the ineffectiveness of the education approach in reducing the numbers of obese and overweight children.
What was the value of the ira at the end of 12 years : What was the value of the Ira at the end of 12 years?
Unbiased expectations theory is correct : If the unbiased expectations theory is correct, what should the current rate be on 3-year Treasury securities?

Reviews

Write a Review

Finance Basics Questions & Answers

  Different between how treasury bonds are traded in asx

What is different between how treasury bonds are traded in ASX with how they traded in Australian bond market?

  Hedge the firm from interest rate risk

When interest rates increase, what happens to the cash flows of the firm and what type of swap position would hedge the firm from interest rate risk?

  Explain which account would earn more money for the investor

Explain which account would earn more money for the investor: a traditional IRA or a Roth IRA. Support your statements with reasons and examples. Describe how people can identify their federal tax brackets

  Firm current earnings per share

Calculate the firm's current earnings per share (EPS) and price/earnings (P/E) ratio-Compare and contrast the stockholders' position under the dividend and repurchase alternatives

  What is the annual growth rate in operating cash flows

If the 10% cap rate represents a fair market value for each property, then which property is the more risky investment (and how do you know)?

  How would this technique affect the profits of future period

Explain how WorldCom showed higher profits in the current period by inaccurately classifying expenses as assets. How would this technique affect the profits of future periods?

  Kads inc has spent 330000 on research to develop a new

kads inc. has spent 330000 on research to develop a new computer game. the firm is planning to spend 193000 on a

  What is the project''s irr and npv?

Maddux, inc is planning to purchase equipment worth $400,000. Delivery and setup costs will amount to $20,000. In addition, $25,000 in net working capital will be required at installation. The equipment will have a 5 years class life and will be depr..

  Participate in the limited upside of yz

Elisa would like to participate in the limited upside of YZ, Inc. As an option writer, she wrote (or sold) five YZ, Inc. call contracts with an exercise price

  Calculate the discount factor that will be applied

Orlando Pixie Dust is considering an option to buy some land in Brazil 9 years into the future. The acquisitions department discounts future projects at 2%. Calculate the discount factor that will be applied to the future cash flow.

  Orange inc sells a learnit-plus software package that

orange inc. sells a learnit-plus software package that consists of their normal learnit math tutorial program along

  Current debt and issue new one to save on interest costs

A treasurer argues with the CFO that because "interest rates have dropped substantially in the last year, the firm should best' back their current debt and issue new one to save on interest costs". The CFO answers that this only makes sense for "the ..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd