Here is the answer for the question – A firm wants to use an option to hedge 12.5 million in receivables from New Zealand firms. The premium is. You’ll find the correct answer below
A firm wants to use an option to hedge 12.5 million in receivables from New Zealand firms. The premium is $.03. The exercise price is $.55. If the option is exercised, what is the total amount of dollars received (after accounting for the premium paid)?
The Correct Answer is
$6,500,000:dollars received from exercising option = NZ$12.5 mill x $.55 = $6,875,00. premium paid for options = NZ$12.5 mill x $.03 = $375,000.Amount of dollars received = $6,875,000 – $375,000 = $6,500,000.
Reason Explained
$6,500,000:dollars received from exercising option = NZ$12.5 mill x $.55 = $6,875,00. premium paid for options = NZ$12.5 mill x $.03 = $375,000.Amount of dollars received = $6,875,000 – $375,000 = $6,500,000. is correct for A firm wants to use an option to hedge 12.5 million in receivables from New Zealand firms. The premium is
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