Repeat the question above using a put with the same strike price, instead of a call. Suppose

Question:

Repeat the question above using a put with the same strike price, instead of a call. Suppose that the current eur/gbp spot rate is 0.6, the effective risk-free rates of return are r = 6 percent and r∗ = 8 percent, and the spot rate will either increase to 0.62 or decrease to 0.57 at time 1.

(a) What is the risk-adjusted probability of a spot rate increase? Decrease?

(b) What is the risk-adjusted expected value of the European call with a strike price of 0.59?

(d) What is the factor u(d) by which the spot rate increases? Decreases?

(e) What is the option's exposure?

(f) Would the option's value change if it were American?

Strike Price
In finance, the strike price of an option is the fixed price at which the owner of the option can buy, or sell, the underlying security or commodity.