On October 23, the closing exchange rate of British pounds was $1.70. Calls that would mature...
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On October 23, the closing exchange rate of British pounds was $1.70. Calls that would mature the following January with a strike price of $1.75 were traded at $0.10. a. Were the call options in the money, at the money, or out of the money? b. Compute the intrinsic value of the call. c. If the exchange rate of British pounds rises to $1.90 prior to the January option expiration date, what is the percentage return on investment for an investor who purchased a call on October 23? (15 marks) On October 23, the closing exchange rate of British pounds was $1.70. Calls that would mature the following January with a strike price of $1.75 were traded at $0.10. a. Were the call options in the money, at the money, or out of the money? b. Compute the intrinsic value of the call. c. If the exchange rate of British pounds rises to $1.90 prior to the January option expiration date, what is the percentage return on investment for an investor who purchased a call on October 23? (15 marks)
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a In this case the strike price is 175 and the closing exchange rate on October 23 was 170 Since the ... View the full answer
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