Bonds maturing in 1,2,and 3 years have prices of 0.9345,0.8766,and 0.8212,respectively.What is the price of a call option that expires in two years and gives you the right to pay 0.8600 to buy the 1-year bond? Assume σ = 0.15.
A) $0.015
B) $0.105
C) $0.205
D) $0.305
Correct Answer:
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