Question
Arthur Doyle at Baker Street. Arthur Doyle is a currency trader for Baker Street, a private...
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 $___/£
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