1. Suppose you sold 1 call option for $.13 and bought 2 put options for $.

05 – both at a
strike price of $1.50. The profitability of this combined option strategy at a price of $1.38
is _____________.
2. Suppose you sold 1 call option for $.13 and bought 2 put options for $.05 – both at a
strike price of $1.50. The profitability of this combined option strategy at a price of $1.55
is _____________.
3. Suppose you sold 1 call option for $.13 and bought 2 put options for $.05 – both at a
strike price of $1.50. The break-even spot price of this combined option strategy at a price
of _____________.
4. Suppose you purchased one call option and sold one put option today. The spot rate of the
New Zealand dollar is $.77. The call option on New Zealand dollars with a one-year
expiration date has an exercise price of $.78 and a premium of $.04. The put option on
New Zealand dollars at the money with a one-year expiration date has a premium of $.03.
You expect that the New Zealand dollar’s spot rate will decline over time and will be $.71
in one year. What will be the profit or loss of this combined option strategy at the end of
one year? [Assume that the options would be exercised on the expiration date or not at
all.]
5. Suppose the current value of the Argentine Peso is $0.1 and you’re looking to buy a
currency call option with a strike price of $0.1. If the U.S. interest rate is 6% and the
Argentine interest rate is 6% and volatility of the Peso has been 50%, what is the value of
1-year call option? (You need to refer to the standard normal distribution table to get the
figure for N(d1) and N(d2), standard normal distribution table)
6. Using the information from problem 1, what is the value of a one year put option?
7. Suppose six-month currency call options for a Euro with a strike price of $1.20 is $0.115
while six-month currency put options at the same strike price is currently priced $0.125.
If interest rates in the U.S. are equal to interest rates in Europe and these options are
currently “at the money”, then, according to put-call parity, the call option is .
A. Overvalued
B. Undervalued