Which of the following securities should sell at a greater price? A 10-year Cana

Question

Which of the following securities should sell at a greater price?

A 10-year Canada bond with a 9 percent coupon rate versus a 10-year Canada bond with a 10 percent coupon rate

B three-month maturity call option with an exercise price of $40 versus a three-month call on the same stock with an exercise price of $35

C A put option on a stock selling at $50,or a put option on another stock selling at$60(allother relevant features of the stocks and options may be assumed to be identical)

D A three-month T-bill with a discount yield of 6.1 percent versus a three-month T-bill with a discount yield of 6.2 percent

Plz explain in super detail for each one plz

Explanation / Answer

A. 10 year Canada bond with 9% coupon rate will sell at a higher price than 10 year Canada Bond with 10% coupon rate because a higher coupon rate means it is a risky security thus it will sell at a lower price .

B.3 month maturity call option with an exercise price of $35 will sell at a higher price . A call option gives its holder the right to buy the underlying security at the strike price . Therefore, since an option with a strike price of $35 allows the option holder to buy the shares at a lower pricethan another option with a strike price of $40 would, the holder of first option has a higher chance of bigger profit when the strike price exceeds the price of underlying asset.

C. A put option on a stock selling at $50 will sell at a higher price. A put option gives its owner the right to sell the shares at a specific strike price ; Here, since the strike prices are assumed to be identical a put option on a stock selling at a lower price of $50 therefore, has a greater chance of being in - the - money.

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