On December 1, 2011, Keenan Company, a U -Compute the Fair Value of the Foreign Currency Option at Merchandise

Multiple Choice

On December 1, 2011, Keenan Company, a U.S. firm, sold merchandise to Velez Company of Canada for 150,000 Canadian dollars (CAD) . Collection of the receivable is due on February 1, 2012. Keenan purchased a foreign currency put option with a strike price of $.97 (U.S.) on December 1, 2011. This foreign currency option is designated as a cash flow hedge. Relevant exchange rates follow: $\begin{array}{|l|c|c|}\hline {\text { Date }} & \text { Spot Rate } & \text { Option Premium } \\\hline \text { December 1,2011 } & \$ .97 & \$ .05 \\\hline \text { December 31,2011 } & \$ .95 & \$ .04 \\\hline \text { February 1,2012 } & \$ .94 & \$ .03 \\\hline\end{array}$
-Compute the fair value of the foreign currency option at December 31, 2011.

A) $6,000.
B) $4,500.
C) $3,000.
D) $7,500.
E) $1,500.