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.

At the time of placement,the premium on the options are quoted at 1¾.What is the cost to Allright in placing the hedge?

A) $1,093,750.
B) $782,250.
C) $360,500.
D) $1,342,500.