An investor owns a call option on bond × with a strike price of 100. The coupon rate on bond × is 9% and has 10 years to maturity. The call option expires today at a time when bond × is selling to yield 8%. Should the investor exercise the call option?
Answer to relevant QuestionsDoes it make sense for an investor who wants to speculate on interest-rate movements to purchase an over-the-counter option? Explain why the writer of an option would prefer an option with a high theta (all other factors equal). What is the intrinsic value and time value of a call option on bond W given the following information? strike price of call option = 97 current price of bond W = 102 call option price = 9 Answer the below questions. (a) Assume that the swap rate for an interest-rate swap is 7% and that the fixed-rate swap payments are made quarterly on an actual / 360 basis. If the notional amount of a two-year swap is $20 ...In determining the cash flow for the floating-rate side of a LIBOR swap, explain how the cash flow is determined.
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