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-Please explain how the period of loan is calculated, it is given in given that ” it is expected to make full repayment of borrowed amount nine months from now” then how is 5 months taken?
-In the options how is premium amount 0.16(strike price 95) and 0.58(95.6) is calculated i am totally confuse.
According to me at a strike price of 95 Premium = 37xContract size(1m)x0.163/400=15078
and at a strike price of 95.6, Premium =37xcontract size(1m)x0.581/400.The first line of the question says that they expect to borrow in four months, and that they will repay it in 9 months.
So the loan is being taken for 9 – 4 = 5 months.95.00 and 95.60 are not available strike prices. I assume you mean 96.00 and 96.50.
At a strike price of 96.00, the premium is 0.163 (from the table) x 37 (contracts) x €1M (size) x 1/400 ( as a 3 months %) = €15,078
Which is exactly the same as the examiners answer.(The examiner has used ticks in his workings, but there is never any need to use ticks (I never do). If you want to use ticks then fine – I explain about ticks in my free lectures.)
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