The current spot rate is $.40/SF. The 6-month forward rate is $.41/SF . A call o

ID: 2748736 • Letter: T

Question

The current spot rate is $.40/SF. The 6-month forward rate is $.41/SF

. A call option that expires in 6-months on 100,000 SF with a strike price of $.40/SF is selling for $1,900.

A put option that expires in 6-months on 100,000 SF with a strike price of $.40/SF is selling for $100.

Six months from now, the spot rate will be $.39/SF (this information is unknown right now, but I’m telling you).

1. If you entered into a contract to sell 100,000 SF in the forward contract, how much would you have made (lost)?

Lost $2,000

Lost $1,000

Made $1,000

Made $2,000

2. If you bought the put option, how much would you have made (or lost) including the original investment?

Lost $900

Lost $100

Made $900

Made $1,100

1. Profit = SF 100000 x ($0.41 - $0.39)

= $2000

Therfore we would have Made $2000

2. Put option premium = $100

Amount tha would have been made by excercising put option = SF 100000 x ($0.40 - $0.39) = $1000

Net amount that would have been Made = $1000 - $100 = $900

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