Bulldog, Inc., has sold Australian dollar put options at a premium of $.02 per unit, and an exercise price of $.89 per unit. It has forecasted the Australian dollar's rate over the period of concern as $.86, $.87, $.88, $.89, $.91 and $.92. Determine the net profit (or loss) per unit to Bulldog, Inc., if Australia dollar each level occurs (show detailed analysis; follow the five steps in the teaching notes).

Question

Evan Santos

Business

29 July, 17:18

Bulldog, Inc., has sold Australian dollar put options at a premium of $.02 per unit, and an exercise price of $.89 per unit. It has forecasted the Australian dollar's rate over the period of concern as $.86, $.87, $.88, $.89, $.91 and $.92. Determine the net profit (or loss) per unit to Bulldog, Inc., if Australia dollar each level occurs (show detailed analysis; follow the five steps in the teaching notes).

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Johnson · Answer 1

Answer: for each dollar rate we get

-$.01

$.00

$.01

$.02

$.04

$0.5

Explanation: exercise price-premium price=$.89-$.02=$.87

Therefore we are to subtract $.87 from each forcasted dollar rate to get the net profit or loss per each.

$.86-$.87=-$.01

$.87-$.87=$.00

$.88-$.87=$.01

$.89-$.87=$.02

$.91-$.87=$.04

$.92-$.87=$.05