Consider a four year European call option on a bond that will mature in five years The five year bond price is $105, the price of a four year bond with the same coupon as the five year bond is $102, the strike price of the option is $100, the four year risk free interest rate is 10 per annum (conti...

Consider a four-year European call option on a bond that will mature in five years. The five-year

Question:

Consider a four-year European call option on a bond that will mature in five years. The five-year bond price is $105, the price of a four-year bond with the same as the five-year bond is $102, the of the option is $100, the four-year risk-free interest rate is 10% per annum (continuously compounded), and the volatility of the forward price of the bond underlying the option is 2% per annum. What is the present value of the principal in the four-year bond? What is the present value of the coupons in the four-year bond? What is the forward price of the bond underlying the option? What is the value of the option? Strike Price
In finance, the strike price of an option is the fixed price at which the owner of the option can buy, or sell, the underlying security or commodity. Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...