An index provides a dividend yield of 1% and has a volatility of 12%, you can assume the index level is 100. The risk-free interest rate is 4%. Assume an investment bank wants to offer a T-year, $100.00 principal-protected note composed of a T-year zero bond and a 1-year call on the index with strike K = $100.00. What maturity (T) should the note have to be worth $100.00? The only way to solve this problem is to iterate a couple of times to get the "right maturity. Use DerivaGem to price the call at "guessed maturities included in the table and work from there. You have finished when the funds available to buy the call ($100 PV($100); are the same as the value of the call. PV($100) = $100.00er1 at the guessed maturity (T). In what range is the maturity of the note? The rage is found when the sign of the GAP changes from positive to negative or vice-versa. Best to copy the table in Excel. Value of Call GAP Guessed Time to Funds Available to buy call: maturity, T $100 - $100.00e- e-rT 4.3678 4.3684 4.3690 4.3696 4.3702 Between 4.3696 and 4.3702 Between 4.3678 and 4.3684 Between 4.3684 and 4.3690 Between 4.3690 and 4.3796 None of the others