Allright Insurance Has Total Assets of $140 Million Consisting of $50

Multiple Choice

Allright Insurance has total assets of $140 million consisting of $50 million in 2-year, 6 percent Treasury notes and $90 million in 10-year, 7.2 percent fixed-rate Baa bonds.These assets are funded by $100 million 5-year, 5 percent fixed rate GICs and equity. On the advice of its chief financial officer, Allright wants to hedge the balance sheet with T-bond option contracts.The underlying bonds currently have a duration of 8.82 years and a market value of $97,000 per $100,000 face value.Further, the delta of the options is 0.5.What type of contract, and how many contracts should Allright use to hedge this balance sheet?

A) puts; 447 contracts.
B) calls; 625 contracts.
C) puts; 625 contracts.
D) calls; 447 contracts.
E) puts; 206 contracts.