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

question 1

Multiple Choice

Bonds maturing in 1,2,and 3 years have prices of 0.9020,0.8320,and 0.7620,respectively.What is the price of a put option that expires in 1 year that gives you the right to sell a 1-year bond for a price of 0.9200? Assume σ = 0.18.

• A) $0.35
• B) $0.25
• C) $0.15
• D) $0.05

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