A fixed-income fund manager plans to sell \(20 \$ 100,000\) face value T-bonds from her government fund in March. The T-bonds she plans to sell pay 3\% interest and are currently priced at 105.

At the anticipated selling date, the bonds will have 15 years to maturity and no accrued interest. The manager believes that long-term rates could decrease but does not want to risk selling the bonds at lower prices if rates increase. For \(\$ 20,000\), the manager can purchase an OTC T-bond option on her bonds from a dealer at an exercise price equal the current price and expiration coinciding with her March T-bond sales date.

a. Describe the OTC option and its terms.

b. Show in a table the manager's option-hedged revenue (do not include option cost) for possible spot T-bond prices at the March sale of 98, 99, 100, 101, 102, 103, 104, 105, 106, 107, 108, 109, and 110.

Assume the manager will exercise her option, if it is feasible (instead of closing), and that she will sell her bonds in the market, if it is not feasible.