Question 12 2 pts XYZ, Inc. has a payable of 1 Million euros due in 3 months. It

Question

Question 12 2 pts XYZ, Inc. has a payable of 1 Million euros due in 3 months. It plans to hedge its payables with a call option that has an exercise price of $1.20, a premium of Time Running Hd Attempt due Mar 7 at 30pn 24 Minutes, 6 Seconds $0.03 and an expiration date of 3 months from today. XYZ's forecast for the spot rate of the euro in 3 months is as follows $1.16 with a probability of 40%; and $1.21 with a probability of 60%. Calculate the expected value of the total amount paid in U.S. dollars when owning a currency call option to purchase 1 Million euros. $1.214,000 $1,154,000 $1.190000 $1,176,000

Explanation / Answer

Answer

Calculation of spot rate of euro in 33 months time
= $1.16 * 40% + $1.21* 60%
= $ 1.19
So 1 Euro = $ 1.19

Expected Value of the total amount paid in us dollar is
= 1,000,000 * 1.19
= $ 1,190,000

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