A eurodollar interest rate put option, which was purchased at a strike price of 93,
A) would not be exercised if the market interest rate was 6½ percent on the contract date.
B) gives the buyer the option of acquiring a lending rate of 9.3 percent on the contract Date.
C) gives the buyer the option of receiving a 7 percent deposit rate on the contract date.
D) would cost the buyer 93 basis points.

Question

Quizplus · Accepted Answer

A eurodollar interest rate put option gives the buyer the option to sell Eurodollar futures at a predetermined strike price. The strike price in this case is 93. If the market interest rate is 6.5 percent on the contract date, it would not be beneficial for the buyer of the put option to exercise their option to sell at the strike price of 93 as they could easily acquire a lending rate at a lower rate in the market. Therefore, choice A is correct. Choice B and C are incorrect because a put option gives the buyer the option to sell at the strike price, not acquire a lending or deposit rate. Choice D is incorrect as the strike price of the put option is 93 basis points, not the cost of the put option.

A Eurodollar Interest Rate Put Option, Which Was Purchased at a Strike