Assume Annual Compounding $\sigma = 0.30$ What Is the Price of a One-Year Maturity Put

question 17

Multiple Choice

Assume annual compounding. The one-year and two-year zero-coupon rates in the BDT model are 6% and 7%. The volatility is given to be $\sigma = 0.30$ . What is the price of a one-year maturity put option on a 7.5% coupon (annual pay) bond at a strike of $100 (ex-coupon) ?

• A) 1.00
• B) 1.08
• C) 1.16
• D) 1.24

---

Definitions:

Debt Securities

Financial instruments representing a loan made by an investor to a borrower, typically corporate or governmental.

Secondary Market

The financial market where investors buy and sell securities they already own, as opposed to the primary market where securities are first issued.

Intrinsic Value

The inherent worth of a company, stock, currency, or product determined through fundamental analysis without reference to its market value.

Stock Price

The current price at which a share of a company is bought or sold in the market.