QUESTION 16

An investment company has purchased $100 million of 10 percent annual coupon, 6-year Eurobonds. The bonds have a duration of 4.79 years at the current market yields of 10 percent. The company wishes to hedge these bonds with Treasury-bond options that have a delta of 0.7. The duration of the underlying asset is 8.82, and the market value of the underlying asset is $98,000 per $100,000 face value. Finally, the volatility of the interest rates on the underlying bond of the options and the Eurobond is 0.84. Given this information, what type of T-bond option, and how many options should be purchased, to hedge this investment?

		792 put options.
		792 call options.
		942 put options.
		942 call options.
		554 put options.