The Philippines BOT is issuing a Retail Treasury Bond. The bond is now trading at Php52 per Php100 par value. A put or call option on the bond with an exercise price of Php53.5 per Php100 might be sold by an over-the-counter options dealer. It's possible that you'll have to choose between European and American options. Assume the contract covers Php10 million in bond face value and is cash settled. What is the value of the short call to pay the long call if the long call exercises his right at the Php55 bond price? How much would the buyer pay for the Php10 million face value bond if it was deliverable? Interpret the result. (Show complete solution.)

The Philippines BOT is issuing a Retail Treasury Bond. The bond is now trading at Php52 per Php100 par value. A put or call option on the bond with an exercise price of Php53.5 per Php100 might be sold by an over-the-counter options dealer. It's possible that you'll have to choose between European and American options. Assume the contract covers Php10 million in bond face value and is cash settled. What is the value of the short call to pay the long call if the long call exercises his right at the Php55 bond price? How much would the buyer pay for the Php10 million face value bond if it was deliverable? Interpret the result. (Show complete solution.)

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter22: International Financial Management

Section: Chapter Questions

Problem 3P

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