What is the forward price of the bond underlying the option

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Reference no: EM131409891

Consider a four-year European call option on a bond that will mature in five years. The five-year bond price is $105, the price of a four-year bond with the same coupon as the five-year bond is $102, the strike price of the option is $100, the four-.year risk-free interest rate is 10% per annum (continuously compounded), and the volatility of the forward price of the bond underlying the option is 2% per annum. What is the present value of the principal in the four-year bond7What is the present value of the coupons in the four-year bond? What is the forward price of the bond underlying the option? What is the value of the option?

Reference no: EM131409891

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