You purchase a 4 year credit spread call option on a 6.6% corporate bond maturing in...
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You purchase a 4 year credit spread call option on a 6.6% corporate bond maturing in 14 years from today, with a strike spread of 120 bps. The benchmark obligation matures at the same time and has a coupon of 4.3%. Suppose the benchmark obligation settles at 104.28 when the option expires. (Assume the underlying in the option is the bond itself.) a) What is the strike price of the option when it expires? You purchase a 4 year credit spread call option on a 6.6% corporate bond maturing in 14 years from today, with a strike spread of 120 bps. The benchmark obligation matures at the same time and has a coupon of 4.3%. Suppose the benchmark obligation settles at 104.28 when the option expires. (Assume the underlying in the option is the bond itself.) a) What is the strike price of the option when it expires?
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The strike spread of the credit spread call option is 120 bps which means that the option holder ... View the full answer
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