Value a 1-Year Call Option Written on £10,000 with an Exercise

Multiple Choice

Value a 1-year call option written on £10,000 with an exercise price of $2.00 = £1.00.The spot exchange rate is $2.00 = £1.00; The U.S.risk-free rate is 5% and the U.K.risk-free rate is also 5%.In the next year,the pound will either double in dollar terms or fall by half (i.e.u = 2 and d = ½) .Hint: H = ?.

A) $6,349.21
B) $\$ 6,666.67 = \$ 20,000 - ( £ 10,000 - £ 6,666.67 ) \times \frac { \$ 4.00 } { £ 1.00 }$
C) $\$ 6,666.67 = £ 6,666.67 \times \frac { \$ 1 } { £ 1 }$
D) None of the above