Holly, a speculator, expects interest rates to decline in the near future. Thus, she purchases a call option on interest rate futures with an exercise price of 92-10. The premium on the call option is 2-24. Just before the expiration date, the price of Treasury bond futures is 97-14. At this time, Holly decides to exercise the option and closes out the position by selling an identical futures contract.
1.) Holly's net gain from this strategy is:
a.) -2687.50
b.) 2687.50
c.) 2375.00
d.) 7437.50
e.) none of the above
2.) Insurers, Inc., an insurance company, sold the call option purchased by Holly. Insurers' net gain from selling the call option to Holly is:
a.) -2687.50
b.) 2687.50
c.) 2375.00
d.) 7437.50
e.) none of the above
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