Question :

If options on $100000, 20-year, 8 per cent coupon Treasury bonds (both puts and calls) have a strike price of 101, what are the possible (intrinsic) values of the option position at the end of year 1 and year 2?

Answer:

The call option's intrinsic value at the end of one year will be either: (a) zero if the price of a $100000 20-year Treasury bond is $90799.21 (in the scenario that interest rates rise to 9 per cent); or (b) $110677.54 $101000 (strike price) = $9677.54 if the price of a $100000 20-year Treasury bond is $110677.54 (in the scenario that interest rates fall to 7 per cent).

My question is How to 90799.21 and 110677.54 calculate?

The call option's intrinsic value at the end of two years will be either: (a) zero if the priceof a $100000 20-year Treasury bond is $82840.91 (in the scenario that interest rates rise to 10 per cent); or (b) zero if the price of a $100000 20-year Treasury bond is $100000 inthe scenario that interest rates stay at 8 per cent); or (c ) $123114.77 $101000 (strike price) = $22114.77 if the price of a $100000 20-year Treasury bond is $123114.77 (in the scenario that interest rates fall to 6 per cent).

How the 82840.91 and 123114.77 calculate?