Problem 1: Muncie Widget Inc. bought Euro call option for a strike price of $1.10 for March, 2007 paying 16.25 cents per unit. When they exercised the option, the spot price was $ 1.36. There are 62,500 units per Euro option.
i. What is the break-even point for this option ?
ii. Compute the total net profit/loss. What is the rate of return?
Problem 2: ABC corp. bought SF currency put option for April 2007, for a strike price of $0.8055 per SF. They paid a premium of 16.2 cents per unit. At the time when ABC corporation considered exercising the put, the spot price was $ 0.6125 per SF. There are 62,500 units in a SF currency option.
i. What is the break-even point for this option ?
ii. Is it worthwhile exercising this option? Compute the total net profit/loss and the rate of return.