(a)Explain why would a company engage in an interest rate swap over other means of managing risk?...
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Question:
(a)Explain why would a company engage in an interest rate swap over other means of managing risk?
(b)The AT Corporation is holding a large number of XXY Bank shares in an investment portfolio and wishes to protect the value of the investment. The XXY Bank shares currently trade at $22.00. The AT Corporation buys a put option with an exercise price of $20.00 per share and a premium of $0.85 per share. By entering this option strategy, explain whether the AT Corporation will exercise the option if the spot price is above or below the exercise price.
[You are required to clearly define a put option, spot price, exercise price, and premium - in order to explain your final answer].
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