Question

Arthur Doyle at Baker Street. Arthur Doyle is a currency trader for Baker​ Street, a private investment house in London. Baker​ Street's clients are a collection of wealthy private investors​ who, with a minimum stake of £230,000each, wish to speculate on the movement of currencies. The investors expect annual returns in excess of 25​%. Although officed in​ London, all accounts and expectations are based in U.S. dollars. Arthur is convinced that the British pound will slide —possibly to $1.3200/£—in the coming 30 to 60 days. The current spot rate is $1.4258/£. Arthur wishes to buy a put on pounds which will yield the 25​% return expected by his investors. Which of the following put options would you recommend he​ purchase? Prove your choice is the preferable combination of strike​ price, maturity, and​ up-front premium expense

Strike Price	Maturity	Premium
$1.36/£	30 days	$.00081/£
$1.34/£	30 days	$.00021/£
$1.32/£	30 days	$.00004/£
$1.36/£	60 days	$.00331/£
$1.34/£	60 days	$.00151/£
$1.32/£	60 days	$.00062/£

The return on investment (ROI) at the strike price of $1.36/£ is ___% (Round to nearest integer)

The return on investment (ROI) at the strike price of $1.34/£ is ___% (Round to nearest integer)

The return on investment (ROI) at the strike price of $1.32/£ is ___% (Round to nearest integer)

Arthur should purchase the 60 day option at strike price $___/£

Answer 1