1. What is the difference between historical and implied market risk premium and which one is the most appropriate?
2. John sold a call option on Euro for $.04 per unit. The strike price was $1.30, and the spot rate at the time the option was exercised was $1.32. Assume John bought the Euro from the market if the option was exercised. Also assume that there are 40,000 units in a Euro option. What was John’s net profit on the call option?