Use the European option pricing formula to find the value of a six-month call option on Japanese yen. The strike price is $1 = ¥100. The volatility is 25 percent per annum; r_$ = 5.5% and r_¥ = 6%. A)0.005395 B)0.005982 C)$0.006137/¥ D)None of the above

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Using the European option pricing formula: Call price = S0N(d1) − Ke−rTN(d2) where: S0 = spot price = ¥1 K = strike price = ¥100 r_$ = 5.5% and r_¥ = 6% --> r = 6% T = time to maturity = 6/12 = 0.5 years σ = volatility = 25% We need to find d1 and d2: d1 = (ln(S0/K) + (r + σ2/2)T) / (σ√T) = (ln(1/100) + (0.06 + 0.252/2)0.5) / (0.25√0.5) = −2.2622 d2 = d1 − σ√T = −2.2622 − 0.25√0.5 = −2.7137 N(d1) = 0.0114 N(d2) = 0.0042 Plugging into the formula, we get: Call price = 1(0.0114) − 100e−0.06×0.5(0.0042) = ¥0.006137 Therefore, the answer is C.

Use the European Option Pricing Formula to Find the Value