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Hello,
I would like to know how the gain on option was calculated.
Looking at the answer (alternative solution), the gain on option is calculated 0.0002*$1m*3/12*42=$2,100
I would like to know how “0.0002” comes from.
If my understanding is correct, it should have been calculated “0.002”, NOT “0.0002”.
(95.7-95.5)/100=0.002.It may be my stupid misunderstanding but it woudl be very appreciated if you could tell me this…
Thank you!
I am looking at the examiners own answer to this question. BPP might have made an error in copying out the answer, although I doubt it.
If interest rates rise by 0.5% (to 4.3%), then the futures price on the date the option is exercised will be 100 – 4.3 – 0.22 (the unexpired basis) = 95.48. (It will not be 95.7, because of the basis).
Therefore the gain on exercising the option will be 95.5 – 95.48 = 0.02.
0.02/100 = 0.0002, and the answer is correct 🙂Have you watched my free lectures on futures and on options?
Thabk you very much!Understood now, which was confusing!
Anyway, I had a mistake for the calculation for the fiture price.
I got to see your lecture again!Thank you John san!?
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