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Consider a call option with an exercise rate of x on an interest rate, which we shall denote as simply L. The underlying rate is an m-day rate and pays off based on 360 days in a year.
Now consider a put option on a $1 face value zero coupon bond that pays interest in the add-on manner (as in Eurodollars) based on the rate L. The exercise rate is X.
Show that the interest rate call option with a notional principal of $1 provides the same payoffs as the interest rate put option if the notional principal on the put is $1(1 þ x(m/360)) and its exercise price, X, is $1/(1 þ x(m/360)).
If these two options have the same payoffs, what does that tell us about how to price the options?
The total return on a stock is equal to: the annual dividend divided by the current stock price. the difference between the capital gains yield and the dividend yield. the capital gains yield plus the dividend yield. (1 + Dividend yield) × (1 + Infla..
A 25 year bond issued today by Carris, Inc. has a coupon rate of 11%, a required return of 12% and a face value of $1000. The bond will be sold 8 years from now when interest rates will be 9%. what is the Beginning value of the bond when it is iossue..
Which of the following are advantages of the corporate form of organization?
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Explain why there are so many different regulatory agencies. Devise a regulatory structure that would improve the existing system.
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A 9.25% coupon bond issued by Gurley Gears LLC is purchased January 1, 2010 and matures December 31, 2018. The purchase price is $1079 and interest (the coupon) is paid semi-annually. If the face value of the bond is $1,000, determine the yield of th..
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