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Hi,
Two strike prices presented, question asks to hedge using options based on an increase AND a decrease in base rate.
Do we present calculations on both strike prices (effectively 4 calculations) or choose a strike price and do two calculations?
Working out effective rates for both strike prices in the event of an increase and a decrease in int rates seems to be time consuming. Thanks
For full marks you should use both strike prices. (It does take time but not really so much extra time because you are doing the same basic procedure)
However if you are short of time then just showing for one strike price will not lose many marks because most of the marks are just for proving that you do know how options ‘work’.
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