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 = ⅔.

A) $6,349.21
B)
C)
D) None of the above