Question

Which security should sell at a greater price? a. A 9-year Treasury bond with a 9.25% coupon rate or a 9-year T-bond with a 10.25% coupon. A 9-year Treasury bond with a 9.25% coupon rate A 9-year T-bond with a 10.25% coupon b. A two-month expiration call option with an exercise price of $41 or a two-month call on the same stock with an exercise price of $36. A two-month expiration call option with an exercise price of $41 A two-month call on the same stock with an exercise price of $36 c. A put option on a stock selling at $51 or a put option on another stock selling at $61. (All other relevant features of the stocks and options are assumed to be identical.) A put option on another stock selling at $61 A put option on a stock selling at $51

Answer 1

a. A 9-year T-bond with a 10.25% coupon. Price increases with coupon rate

b. A two-month call on the same stock with an exercise price of $36. Call price increases with decrease in exercise price

c. A put option on a stock selling at $51. Put price increases with decrease in stock price.