What is the estimated dollar cash inflows of patton

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Assume that Patton Co. will receive 100,000 New Zealand dollars (NZ$) in 60 days. Today's spot rate of NZ$ is $0.52. A put option on NZ$ exists with an exercise price of $0.54, a premium of $0.02, and a 60-day expiration date. The forecasted spot rate of the NZ$ in 60 days is $0.50 with a probability of 20%, $0.53 with a probability of 40% and $0.55 with probability of 40%.

Problem a. What is the estimated dollar cash inflows of Patton if it uses the put option hedge?

Problem b. What is the estimated dollar cash inflows of Patton if it does not hedge?

Problem c. In the previous of Patton Co., Patton will use the put option to hedge its receivables. (True or False)

Reference no: EM132885203

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