Respuesta :
The cost of the underlying investment plus the premium paid ($.81 cents + $.0125 equals $.8225, or 8214 cents) is the breakeven point when using puts as a hedge.
The correct option is A.
What is underlying investment?
When assets of the plan are invested in mutual funds, exchange-traded funds, bank products, or any other investments through the investment options, those investments are referred to as "underlying investments."
Underlying Funds are the private equity funds that the Fund indirectly invests in through its investment in the Master Fund. This includes investments in the equity or debt securities of portfolio companies together with Underlying Funds and other private equity firms.
What is breakeven point?
The break-even point is the point at which total costs and total revenues are equal, or "even," in economics, business, and specifically cost accounting. Despite opportunity costs having been covered and capital receiving the risk-adjusted, expected return, there is no net loss or gain, and one has "broken even."
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I understand that the question you are looking for is:
A foreign currency investor is long 40,000 Swiss francs at $.81. If the investor buys 4 July 80 SF puts at 1.25 to hedge, the breakeven point is:
A) 0.8225.
B) 0.5125.
C) 0.4875.
D) 0.4975.
