a firm wants to use an option to hedge 12.5 million in receivables from new zealand firms. the premium is $.03. the exercise price is $.55. if the option is exercised, what is the total amount of dollars received (after accounting for the premium paid)? group of answer choices

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21-10-2022
Business

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a firm wants to use an option to hedge 12.5 million in receivables from new zealand firms. the premium is $.03. the exercise price is $.55. if the option is exercised, what is the total amount of dollars received (after accounting for the premium paid)? group of answer choices

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febyyyvaalentina febyyyvaalentina · Answer 1 · 2022-10-24T10:16:20-04:00

The total amount of dollars received (after accounting for the premium paid) is equals to $6,500,000. A forward premium can be defined as a situation in which the forward or expected future price for a currency is greater than the spot price.

In economy, a forward premium can be defined as a frequently measured as the difference between the forward rate and the current spot rate. Forward premium is equivalent to a discount when a forward premium is negative.

Dollars received from exercising option = $12.5 million x $.55 = $6,875,000.

Premium paid for options = $12.5 million x $.03 = $375,000.

Amount of dollars received minus premium = $6,500,000.

Learn more about forward rate currency here https://brainly.com/question/15175135

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