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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.
At the time of placement, the premium on the options are quoted at 1. What is the cost to Allright in placing the hedge?
A. $1,093,750.
B. $782,250.
C. $360,500.
D. $1,342,500.
E. $1,094.
Answer
This answer is hidden. It contains 53 characters.
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