Answer: 0.0727 USD/EUR.

## Explanation This question tests the **put-call parity** relationship for European options on forward contracts. The put-call parity formula for forward contracts is: **C - P = (F - K) / (1 + r)^T** Where: - C = Call premium - P = Put premium - F = Forward price - K = Strike price - r = Risk-free rate - T = Time to expiration (in years) Given: - F = 1.2000 USD/EUR - K = 1.2250 USD/EUR - r = 5% = 0.05 - T = 2 years - C = 0.0500 USD/EUR First, calculate the present value factor: (1 + r)^T = (1 + 0.05)^2 = 1.1025 Now, calculate (F - K): F - K = 1.2000 - 1.2250 = -0.0250 Then, calculate (F - K) / (1 + r)^T: (-0.0250) / 1.1025 = -0.022676 Now, rearrange the put-call parity formula to solve for P: P = C - [(F - K) / (1 + r)^T] P = 0.0500 - (-0.022676) P = 0.0500 + 0.022676 P = 0.072676 ≈ 0.0727 USD/EUR Therefore, the put premium is closest to **0.0727 USD/EUR**, which corresponds to option B. **Key points:** - The put-call parity relationship is fundamental in derivatives pricing - For forward contracts, the formula uses the forward price (F) rather than the spot price - The present value factor accounts for the time value of money over the 2-year period - Since F < K (1.2000 < 1.2250), the forward contract has negative intrinsic value, which explains why the put premium is higher than the call premium

Author: LeetQuiz .