The correct answer is: 65.7p

The company is trying to maximise the exchange rate to get the greatest amount of sterling in exchange for the euros as possible.

You have been provided with probabilities therefore you could use expected values to assess the problem.

Expected value of exchange rate

= (64p x 0.1) + (65p x 0.4) + (66p x 0.3) + 67p x 0.1) + (68p x 0.1)

= 65.7p

There is a 50% chance that the option will not yield a benefit because the prevailing rate is 66p or above.

There is only a 10% chance that the option will definitely yield a benefit by falling below 65p.

The probabilities indicate that the option is unlikely to be needed.