Question
You have just paid $1,100 to buy one call option contract on Alibaba Group Holding Ltd. (US ticker: BABA) with a strike price of $200
You have just paid $1,100 to buy one call option contract on Alibaba Group Holding Ltd. (US ticker: BABA) with a strike price of $200 per share expiring on June 19, 2020. BABA closes at $209 on the expiration date. Your profit & loss, and action on that date are:
A) Profit of $900, and you exercise your in-the-money call option
B) Loss of $200, and you exercise your in-the-money call option
C) Profit of $900, and you do not exercise your out-of-the-money call option
D) Loss of $200, and you do not exercise your out-of-the-money call option
E) Profit of $1,100, and you exercise your in-the-money call option.
Company A requires a fixed-rate investment; company B requires a floating-rate investment. The two companies have been offered the following annual rates of return:
Company | Fixed Rate | Floating Rate |
A | 7% | LIBOR |
B | 8% | LIBOR |
A bank charges 0.2% per year to structure a swap equally attractive to companies A and B. The swap enables the companies to earn the following annual rates of return:
A) A: LIBOR 0.4%; B: 8.4%
B) A: 7.6%; B: LIBOR + 0.6%
C) A: LIBOR 0.6%; B: 8.6%
D) A: 7.4%; B: LIBOR + 0.4%
E) None of the above
Please show calculation/Explanation
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