Allright Insurance has total assets of $140 million consisting of $50 million in 2-year,6 percent Treasury notes and $90 million in 10-year,7.2 percent fixed-rate Baa bonds.These assets are funded by $100 million 5-year,5 percent fixed rate GICs and equity.

At the time of placement,the premium on the options are quoted at 1¾.What is the cost to Allright in placing the hedge?

Question

At the time of placement,the premium on the options are quoted at 1¾.What is the cost to Allright in placing the hedge?

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The Answer of Allright Insurance has total assets of $140 million consisting of $50 million in 2-year,6 percent Treasury notes and $90 million in 10-year,7.2 percent fixed-rate Baa bonds.These assets are funded by $100 million 5-year,5 percent fixed rate GICs and equity.

At the time of placement,the premium on the options are quoted at 1¾.What is the cost to Allright in placing the hedge?

Allright Insurance Has Total Assets of $140 Million Consisting of $50