No of possible spot rate on three months time
Call option on WF 3,000,000 with a 300 exercise price
Spot rate in 3months Exercise option cost currency cost total cost
3months
WF/£1 £ £ £
280 yes 862 10000 10862
290 yes 862 10000 10862
300 yes 862 10000 10862
310 no 862 9677 10539
320 no 862 9375 10237
330 no 862 9091 9953
340 no 862 8824 9686
I want to know how this spot spot price in three months time came as 280,290,300,310,320,330,340
I am using kaplan text book and revision
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it is the question from past paper jun 95 from Vertid Ltd from question (B)
12y ago#1I do not have the Kaplan books and so I can not give you a definitive answer.
I would guess that they are just using those spot prices as a way of illustrating how the options would work. Obviously whether or not the option is exercised will depend on what the spot price turns out to be.
In the absence of any other instructions in the question, this would be a sensible thing to do (and you could have used other spot prices to illustrate - provided, of course, that some were above and some were below the exercise price).
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