Problem:
The May Company purchased Canadian dollar call options for speculative purposes. If these options are exercised, the May Company will immediately sell the Canadian dollars in the spot market. Each option was purchased for a premium of $.03 per unit, with an exercise price of $.75. The May Company plans to wait until the expiration date before deciding whether to exercise the options.
Using the following table fill in the net profit or (loss) per unit to The May Company based on the listed possible spot rates of the Canadian dollar on the expiration date.
Possible Spot Rate of Net Profit (Loss)per Unit
Candian Dollar
on Expiration Date
$0.76
$0.78
$0.80
$0.82
$0.85
$0.87