Exercise 14 Answers

Exercise 14 Answers - $120.00 per $100 face value. If the...

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ECON 423 – Exercise 14 a. Let us say that you want to buy 10 year T-Notes in December, 2011 with $100,000 face value. Explain how you will use futures and options to hedge your risk. I can buy a Interest Futures for delivery of the T-Notes in December, 2011. This will require payment of an initial margin of $1755.00 . I can buy a CALL OPTION for the T-Notes. This will require a payment of option price. b. Let us say that you have a call option to buy the above T-notes at a strike price of
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Unformatted text preview: $120.00 per $100 face value. If the spot price of the option on the settlement date is $130.00, will you exercise your option? What will your decision be if the spot price is $110.00? If the spot price is $130.00, I will definitely exercise my option as the price to buy the T-Notes is lower at $120.00. However, if the spot price is $110, I will NOT exercise my option as I can buy the T-note at a price lower than the strike price....
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This note was uploaded on 02/13/2012 for the course ECON 423 taught by Professor Vd during the Spring '08 term at UNC.

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