Representing profit-breakeven and expected profit

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Problem:

A speculator is considering the purchase of five three-month Japanese yen call options with a striking price of 96 cents per 100 yen. The premium is 1.35 cents per 100 yen. The spot price is 95.28 cents per 100 yen and the 90 day forward rate is 95.71 cents. The speculator believes the yen will appreciate to $1.00 per 100 yen over the next three months. As the speculator's assistant you have been asked to prepare the following:

  • Graph the call option cash flow schedule.
  • Determine the speculator's profit if the yen appreciates to $1.00/100 yen.
  • Determine the speculator's profit if the yen appreciates only to the forward rate.
  • Determine the future spot price at which the speculator will only breakeven.

Additional Information:

The question is from Finance and it is about call options. The question here is about speculator who invests in 3-month Japanese yen. Four questions regarding the value of yen after the 3-month period have been computed representing profit, breakeven and expected profit.

Reference no: EM13828233

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