Determine the Value of an Interest Rate Call Option at the Maturity

question 22

Multiple Choice

Determine the value of an interest rate call option at the maturity of a loan if the call has a strike of 12 percent,a face value of $50 million,the loan matures 90 days after the call is exercised,the call expires in 60 days,the call premium is $200,000,and LIBOR ends up at 13 percent.

• A)$125,000
• B)$83,333
• C)$208,000
• D)-$75,000
• E)none of the above

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Definitions:

Viscous

A physical property indicating a fluid's resistance to flow; highly viscous substances move slowly.

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Cavities filled with gas trapped within a solid material, often found in cooling lava.

Magma Rise

The upward movement of molten rock or magma from the Earth's mantle towards the crust, often leading to volcanic activity.

Pressure Decreases

A phenomenon where the force exerted by a fluid per unit area decreases, commonly observed with increasing altitude in the atmosphere.