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Assume Annual Compounding σ=0.30\sigma = 0.30 What Is the Price of a One-Year Maturity Call Option

Question 16

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 σ=0.30\sigma = 0.30 .What is the price of a one-year maturity call option on a 7.5% coupon (annual pay) bond at a strike of $100 (ex-coupon) ?


A) 0.80
B) 0.90
C) 1.00
D) 1.10

Correct Answer:

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