There is a put option on the euro with an exercise price of $0.54/euro and it expires in three months and is trading at 1.55 cents per euro. The minimum contract size is euro 32,000. What would be the net payoff to the buyer and the seller of the put if the spot price at expiration is $0.71/euro, and what is the break-even rat
Suppose that c1, c2 and c3 are the prices of European call options with strike prices X1, X2 and X3, respectively, where X3>X2>X1 and X3-X2=X2-X1. All options have the same maturity. Show that C2 is less than or equal to 0.5(C1+C3) (Hint: Consider a portfolio that is long one option with strike price X1, long one option w
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You are considering the purchase of a new car. The choices are: A. Pay $27,500 cash, or B. Pay $650 a month for 4 years, with an up-front service fee of $500, or C. Pay $750 a month for 3 years plus a balloon payment of $5,000. What are the implied interest rates in financing arrangements B and C?
Question 6 (Futures): Packers Inc. is a U.S. based manufacturer of cheese. The company considers expan¬ding its current operations by building a plant in the U.K. The CFO has presented the board with the following cash flow projections: Required initial outlay in U.S. dollars to be paid immediately is $600,000. The projected