Imagine a world where the spot exchange rate is S0($/€) = $1.50/€ today and in the next year S1($/€) is either $1.80/€ or $1.20/€. The one-year interest rates are i$ = 7.1%, and i€ = 5%. Assume CIP holds.
Use the replicating-portfolio approach to find the value of a put option on $15,000 with a strike price of €10,000."

Answer rating: 100% (QA)

Answer A call option on 10000 with strike price S0 S 150 will payoff either 3000 or 0 s If S1 S 1800 ... View the full answer