Which security should sell at a greater price a An 8year Tre

Which security should sell at a greater price? a. An 8-year Treasury bond with an 8.25% coupon rate or an 8-year T-bond with a 9.25% coupon. An 8-year T-bond with a 9.25% coupon An 8-year Treasury bond with an 8.25% coupon rate b. A four-month expiration call option with an exercise price of $37 or a four-month call on the same stock with an exercise price of $32 A four-month expiration call option with an exercise price of $37 A four-month call on the same stock with an exercise price of $32 c. A put option on a stock selling at $47 or a put option on another stock selling at $57. (All other relevant features of the stocks and options are assumed to be identical.) A put option on another stock selling at $57 A put option on a stock selling at $47

Solution

A. An 8 Year T bond with a 9.25% coupon.

Since the period of both the bond is same and so the bond which is paying higher interest rate will ofcourse have greater price as compared to same period bond with lower interest rate.

B. A four month call option with the strike price of $32.

Call option is the option to enjoy the payoff of the stock price on upward. So lower is the exercise price higher is chance of payoff on the stock and so an option of call with a lower Exercise price cost more as compared to higher exrecise price.

C. A Put option on another stock selling at $57.

Put option is the option to enjoy the Payoff on the price of stock falls. So higher will be the exercise price more will be change of payoff on the fall of price. And so a Put option with higher exercise price costs more.