23-92 If the Manager Buys a One-Year Option with an Exercise

question 52

Multiple Choice

23-92 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)$862.10.
• B)$743.23.
• C)$900.93.
• D)$811.70.
• E)$917.36.

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Definitions:

Yield

Yield is the income returned on an investment, such as the interest or dividends received, expressed as a percentage of the investment's cost.

Price

The financial sum anticipated, obliged, or handed over in exchange for an item.

Coupon Rate

The interest rate that a bond issuer will pay to the bondholders; it's set as a fixed percentage of the bond's par value.

Yield

The income return on an investment, such as the interest or dividends received from holding a particular security.