PROBLEM 4 Looking at the following options table: British Pound Option Prices (U

Question

PROBLEM 4 Looking at the following options table: British Pound Option Prices (US CENTS PER POUND, 62500 pounds per contract US cents/Pound Spot Rate 144.8, 144.8, 144.8 Strike Price 144.0 145.0 146.0, Call May: .88, .42, .20 Call June: 1.42, 1.02, .68 Call July: 1.44, -, .72 Put May: .52, -, 2.23 Put June: 1.06, -, 2.23 Put July: -, -, - QUESTION A: Give me one example of an option that is out of the money? Be specific as far as month and strike price. Explain your answer? QUESTION B: Give me one example of an option that is in the money? Be specific as far as month and strike price. Explain your answer? QUESTION C: Which, if any, option is at the money? Explain your answer. QUESTION D: Looking at the in-the-money option you choose for Question B. Break down the premium into its Intrinsic Value and Time Premium components Show your calculations. QUESTION E and F: If you purchase two (2) June 145.0 call options what will be the total amount of your premium that you need to pay? When do you pay this premium: on the settlement date or on the date that you purchase the options? QUESTION G: Today you purchase three (3) June 144.0 Puts. On settlement date the spot rate = 142.5 cent per pound, what is your net profit/loss? Show your calculations. QUESTION H: Today you purchase two (2) June 144.0 Calls. On settlement date the spot rate = 143.5 cent per pound, what is your net profit/loss? Show your calculations.

Explanation / Answer

PROBLEM 4 Looking at the following options table: British Pound Option Prices (US CENTS PER POUND, 62500 pounds per contract US cents/Pound Spot Rate

What was the closing price of the British pound on April 18, 2009?

A) $1.448/

B) 1.448/$

C) $14.48/

D) None of the above

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