Determine the value of an interest rate call option at the maturity of a loan if the call has a strike of 12 percent,a face value of $50 million,the loan matures 90 days after the call is exercised,the call expires in 60 days,the call premium is $200,000,and LIBOR ends up at 13 percent.
A)$125,000
B)$83,333
C)$208,000
D)-$75,000
E)none of the above

Question

Quizplus · Accepted Answer

The payoff of the call option at maturity is calculated as the difference between the LIBOR rate and the strike rate, multiplied by the face value of the loan, adjusted for the 90-day period. The payoff is: (0.13 - 0.12) * $50,000,000 * (90/360) = $125,000.

Determine the Value of an Interest Rate Call Option at the Maturity