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Super Bank purchases a $100 zero-coupon bond with 2 years to maturity at $80,44. This means YTM = 11,5%. Market yield on 1-year bonds is 10% and forecast for next year's 1-year rate is that rates will rise to either 13,82% (scenario A) or 12.18% (Scenario B). The two scenarios are equally probable. To limit their risks, Super Bank decides to buy an European put on the bond with strike price $88,60 and maturity of 1 year from now.
• If Super Bank need to sell the bond after 1 year from now what are the two possible bond price under each of the scenarios?
• What is the expected price of the bond after 1 year from now?
• What is the maximum value of the put 1 year from now, given only the two scenarios are possible?
• What is the current value of the put (today)? (accuracy of $0,01 for all tasks in Question I)
Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..
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