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Question
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.
If rates increase 1 percent, what will be the change in value of the option position?
A. -$1,660,525.
B. +$1,660,525.
C. -$2,430,511.
D. -$765,253.
E. +$2,430,511.
Answer
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