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Andrej [43]
3 years ago
10

Assume that a speculator purchases a put option on British pounds (with a strike price of $1.50) for $0.05 per unit. A pound opt

ion represents 31,250 units. Assume that at the time of the purchase, the spot rate of the pound is $1.51 and continually rises to $1.62 by the expiration date. The highest net profit possible for the speculator based on the information above is: Group of answer choices $1,562.50 -$1,250.00 -$625.00 -$1,562.50
Business
1 answer:
gladu [14]3 years ago
6 0

Answer:

-$1,562.50

Explanation:

Calculation to determine The highest net profit possible for the speculator based

Premium of the option = $.05 per unit * (31,250 units)

Premium of the option= -$1,562.50

Therefore Based on the information given and the above calculation The HIGHEST NET PROFIT that will be possible for the speculator will be -$1,562.50

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Answer:

R is a better alternative because it has a higher NPV than Q.

Explanation:

Machines                            Q                                  R

First costs                   $380,000                  $395,000

Net annual revenue $150,000 in year 1,      $152,500

                                  increasing by $500

                                   per year thereafter  

Salvage value               $4,000                             0

Life, years                           8                                 10

MACRS 7 year recovery:

year                    %                         Q                           R

1                      14.29%               54,302                  56,445.50

2                    24.49%               93,062                  96,735.50    

3                     17.49%               66,462                  69,085.50

4                     12.49%               47,462                  49,335.50

5                      8.93%               33,934                   35,273.50

6                      8.92%               33,896                  35,234.00

7                      8.93%               33,934                   35,273.50

8                      4.46%                16,948                    17,617.00

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year                                    Q                           R

1                                     116,505.70                   118,880.93

2                                    130,396.70                  132,982.43    

3                                    121,411.70                     123,304.93

4                                    115,086.70                   116,392.43

5                                    110,676.90                    111,470.73

6                                    110,930.10                    111,456.90

7                                    111,326.90                     111,470.73

8                                    108,306.80                 105,290.95

9                                                                            99,125

10                                                                           99,125

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  • Q's NPV = $200,636.15
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