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Nutourne Dec2018 (Option)

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Nutourne Dec2018 (Option)

  • This topic has 1 reply, 2 voices, and was last updated 10 months ago by John Moffat.
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  • August 23, 2024 at 9:00 am #710215
    neoh0714
    Participant
    • Topics: 15
    • Replies: 11
    • ☆

    Hi sir,

    I have some doubt about the working for if option not exercised, the answer provided in Kaplan kit assume that will receipt same as futures:-

    12,688,550 = 12,250,000x – 105,350

    I wonder why assume same receipt as futures? The question isn’t said that any not hedged will be hedged on forward market?

    If assume same receipt as futures, then why use 12,250,000x? the amount to receive is CHF12.3m isn’t it? CHF50,000 missing if follow kaplan’s answer.

    Below is my working for if option lapse & hedge usiing futures.

    Expected receivable from futures : CHF12.3m*1.0361 = $12.744m – Premium $105k = $12.639m

    Hope sir can explain, thank you very much!

    August 24, 2024 at 9:00 am #710264
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    The answer is not assuming that the receipt will be the same.

    If the options are exercised then futures would have given the higher receipt.

    However, whether or not the options are exercised depends on what happens to the spot rate because if the spot rate turns out to be better than the exercise price then they would not exercise the options. So the answer is calculating what the spot rate would have to be for that to be the case.

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