Bonds Maturing in 1,2,and 3 Years Have Prices of 0

question 17

Multiple Choice

Bonds maturing in 1,2,and 3 years have prices of 0.9345,0.8766,and 0.8212,respectively.What is the price of a call option that expires in two years and gives you the right to pay 0.8600 to buy the 1-year bond? Assume σ = 0.15.

• A) $0.015
• B) $0.105
• C) $0.205
• D) $0.305

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Definitions:

Repressor

A protein that binds to specific sites on DNA, preventing the transcription of certain genes and regulating gene expression.

RNA Polymerase

An enzyme responsible for synthesizing RNA from a DNA template, playing a crucial role in gene transcription.

Alternative RNA Splicing

A post-transcriptional process in which exons or introns are selectively included in or excluded from a final mRNA transcript, thus allowing a single gene to code for multiple proteins.

Acetyl Groups

Functional groups in organic chemistry that consist of a methyl group single-bonded to a carbonyl. The formula is CH3CO-.