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Can someone please help me answer PART II of the following question: (PART I has been answered) Part I. Explain why an American call options
Can someone please help me answer PART II of the following question: (PART I has been answered)
Part I.
- Explain why an American call options on futures could be optimally exercised early while call options on the spot cannot be optimally exercised. Assume that there is no dividend.
- Explain that an at-the-money call option on a given stock must cost more than an at-the-money put option on that stock with the same maturity. The stock will pay no dividends until after the expiration data.
(6 Marks)
Part II.
Consider a five-year bond with a 10% coupon, paid every six-months and with yield-to-maturity 8% per annum semi-annual compounding. If the bonds yield-to-maturity remains constant, then in one year, will the bond price be higher, lower, or unchanged? Please justify your answer.
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