Suppose the Current Spot Rate for the DM Is $0

question 5

Multiple Choice

Suppose the current spot rate for the DM is $0.5925. The call premium on a call option with an exercise price of $0.5675 is $0.0373. What is the time value of one DM 62,500 call option?

• A) $2,331.25
• B) $1,562.50
• C) $950.00
• D) $768.75

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Definitions:

Interest-Rate Risk

Interest-rate risk is the risk that changes in interest rates will negatively affect the value of an investment, particularly relevant for fixed-income securities.

Bond Duration

A measure of the sensitivity of a bond's price to changes in interest rates, representing the weighted average time until a bond's cash flows are received.

Coupon Rate

The annual interest rate paid on a bond, expressed as a percentage of the face value.

Yield To Maturity

The total return anticipated on a bond if it is held until the maturity date, taking into account both the interest payments and capital gains or losses.