A Firm Wants to Use an Option to Hedge 12

Multiple Choice

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) ?

A) $6,875,000
B) $7,250,000
C) $7,000,000
D) $6,500,000
E) None of these are correct.
Answer Key