Yen call options with a strike price

Assignment Help Financial Management
Reference no: EM131442443

A speculator is considering the purchase of five three-month Japanese yen call options with a strike price of 96 cents per 100 yen. The premium is 1.35 cents per 100 yen. The spot price is 95.28 cents per 100 yen and the 90-day forward rate is 95.71 cents. The speculator believes the yen will appreciate to $1.00 per 100 yen over the next three months. As the speculator's assistant, you have been asked to prepare the following:

1. Diagram the call option, profit (or loss) on the y-axis and future spot price on the x-axis.

2. Determine the speculator's profit if the yen appreciates to $1.00/100 yen.

3. Determine the speculator's profit if the yen appreciates only to the forward rate.

4. Determine the future spot price at which the speculator will only break even.

Reference no: EM131442443

Questions Cloud

What are fords two major segments : What are Ford's 2 major segments? What are the major 3 components associated with Ford's profitability for cars and trucks? Comment briefly (one paragraph) on Ford's planning assumptions and key metrics share.
What is the unitary tax systems : In 1998, a major dispute broke out between California and the United Kingdom involving taxation of the income of Barclays Bank, one of the major British banks.
Estimate of the nominal interest rate on new bonds : Absalom Motors's 8% coupon rate, semiannual payment, $1,000 par value bonds that mature in 30 years are callable 6 years from now at a price of $1,025. The bonds sell at a price of $1,254.87, and the yield curve is flat. Assuming that interest rates ..
Give an example of an abnormal behavior and identify : Using your textbook and readings, give an example of an abnormal behavior and identify the school of thought associated with it.Use in-text citations in complete 6th edition APA format.
Yen call options with a strike price : A speculator is considering the purchase of five three-month Japanese yen call options with a strike price of 96 cents per 100 yen. The premium is 1.35 cents per 100 yen. The spot price is 95.28 cents per 100 yen and the 90-day forward rate is 95.71 ..
What is a substanceuse disorder : What are the pharmacological and physiological effects of substance use? Select two substances from the following and describe at least two pharmacological and physiological effect of each.What is a process addiction? What is a substanceuse disorde..
Define the statement wheather it is true or not : True or false: "Government borrowing can transfer resources from future generations to the present, but it cannot affect the overall wealth of the country." Discuss.
What are trading volume-open interest and notional values : What do you predict would happen to these measures if the notional value of a popular contract were cut in half? What is each trader’s net position in the contract at the end of the day? What are trading volume, open interest, and the notional values..
How do regional trade agreements affect labor : How do regional trade agreements affect labor, financial, physical, and intellectual capital mobility? In what ways do these agreements increase capital and resource mobility and expansion decisions?

Reviews

Write a Review

Financial Management Questions & Answers

  Stocks market price can deviate from its intrinsic value

It has been argued that stock’s market price can deviate from its intrinsic value. If all investors attempt to behave in an entirely rational manner, could these differences still exist? the fact that historical probabilities of financial events are ..

  Calculate the breakeven price from the information

Calculate the breakeven price from the following information.

  Share is overvalued and undervalued or properly valued

X shares are expected to pay a dividend of €1.2 at the end of each of the next two years, respectively. The analyst estimates: the required rate of return to be 7%; the expected price at the end of this 2-year holding period to be €28.00. The current..

  What is the cash balance deduction

What is the Cash Balance Deduction? What is the Dollar Return that could be earned on these savings? What is the maximum monthly charge Cookie Cutter should pay for this lockbox system if the payment is due at the end of the month?

  Debt and preferred stock and common stock and market

You are given the following information for Lightning Power Co. Assume the company’s tax rate is 40 percent. Debt: 10,000 7.1 percent coupon bonds outstanding, $1,000 par value, 25 years to maturity, selling for 107 percent of par; the bonds make sem..

  Ruined carpeting from clogged sewer line

During the year, R had various losses. Explain whether each of the following would qualify as a casualty loss. Loss of tree from Dutch elm disease. Ruined carpeting from clogged sewer line. Hole in his suit from cigarette ashes he dropped; ruined shi..

  Dividends are expected to grow at rate-current share price

Synovec Co. is growing quickly. Dividends are expected to grow at a rate of 24 percent for the next three years, with the growth rate falling off to a constant 5 percent thereafter. If the required return is 14 percent, and the company just paid a di..

  Will the new level of operating leverage

At an output level of 83,000 units, you calculate that the degree of operating leverage is 3. The output rises to 90,000 units. What will the percentage change in operating cash flow be? Will the new level of operating leverage be higher or lower?

  What is the after tax salvage value-operating cash flow

The company is thinking about a new project. They expect to have sales of 500,000. Variable and fixed costs should be 200,000. The equipment is going to cost 600,000. What's the after tax salvage value? What's the operating cash flow? What's the NPV?

  Assess short-term liquidity by looking at firm current ratio

Assume XYZ Corp. had a current ratio of 12.5 You are the CFO of XYZ Corp. Would you argue the high current ratio is good or bad? Why? Ratios provide us with the ability to quickly assess a particular item. We can quickly assess short-term liquidity b..

  Determine the net cash flows for the first year of project

Out of Eden, Inc., is planning to invest in new manufacturing equipment to make a new garden tool. The new garden tool is expected to generate additional annual sales of 8,500 units at $44 each. The new manufacturing equipment will cost $156,500 and ..

  Break even in dollars and units for the new location

A sandwich shop has been doing business for 10 years in Pinecrest. The shop currently operates out of a building that is paid for. The variable overhead expenses are 10% of sales each sandwich has a food cost of $1. Break even in dollars and units fo..

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