23-88 If the Manager Buys a One-Year Option with an Exercise

question 89

Multiple Choice

23-88 If the manager buys a one-year option with an exercise price equal to the expected price of the bond in one year,what will be the exercise price of the option?

• A)$84.00.
• B)$85.99.
• C)$86.21.
• D)$85.74.
• E)$85.96.

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Definitions:

Months

Units of time, each roughly equivalent to one twelfth of a year, used in planning and organizing.

Rate Of Interest

The percentage of the principal that will be charged for a particular period of time, normally one year.

Interest

The charge for borrowing money or the return on deposited funds, typically expressed as a percentage rate over a period of time.

Simple Annual Interest Rate

The percentage of the principal amount that will be charged or earned as interest, calculated once per year without compounding.