An investment company has purc

An investment company has purchased $100 million of 10 percent annual coupon, 6-year Eurobonds. The bonds have a duration of 4.79 years at the current market yields of 10 percent. The company wishes to hedge these bonds with Treasury-bond options that have a delta of 0.7. The duration of the underlying asset is 8.82, and the market value of the underlying asset is $98,000 per $100,000 face value. 1. Given this information, what type of T-bond option, and how many options should be purchased, to hedge this investment?

a. 792 call options

b. 554 put options

c. 792 put options

d. 942 call options

e. 942 put options

2. Using the above info, what will happen to the market value of the Eurobonds if market interest rates fall 1 percent to 9 percent?

a. increase $6,735,272

b. Decrease $8,018,182

c. Increase $4,354,545

d. Increase $8,018,182

e. Decrease $4,354,545

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