Problem:
Assume that a British pound put option has a premium of $0.03 per unit, and an exercise price of $1.60. The present spot rate is $1.61. The expected future spot rate on the expiration date is $1.52. The option will be exercised on this date if at all.
Required:
Question: What is the expected per unit net gain (or loss) resulting from purchasing the put option?
A. $.01 loss
B. $.09 loss
C. $.09 gain
D. $.05 gain
Note: Be sure to show how you arrived at your answer.