Question: Need help with question 9 and 10. The answer to 9 is not 0. A bank has $20M face value of a certain bond. The

Need help with question 9 and 10. The answer to 9 is not 0.

A bank has $20M face value of a certain bond. The current price of these bonds are 0.90 (thus the value of this position is currently $18M), and the duration of these bonds is 3. Suppose that the bank bought puts on $15M FV worth of these same bonds, each with a strike price of 0.90.

QUESTION 7

If the value of the bonds stay the same, what is the value of the options at expiration?

Ans: 0

QUESTION 8

If the interest rate factor increased by 2% marketwide, what would the new value of these bonds be?

Ans:16920000

QUESTION 9

If the options were expiring at this point, what is the value of the options?

QUESTION 10

What would the combined value of the options and the bond position be

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