A lender purchased a put with X=7.8% and notional amount of 7,800,000. The put's expiration is...

A lender purchased a put with X=7.8% and notional amount of 7,800,000. The put's expiration is in 80 days and the underlying is the 180-day corporate loan rate. What will be the put's payoff, if at expiration the 180-day spot rate is 6.6%? Round your answer to the nearest integer with no ',' separators.

Expert Solution

Strike price X = 7.8%

180 days Spot rate at Expiration = 6.6%

Put option Value = Strike price - Spot rate at Expiration. If Value is positive, option will be Excercised. Otherwise it will not be Excercisd and value of put will be 0.

Put option Value at Expiration = 7.8%-6.6% = 1.2%

Value is positive. So Option will be Excercisd.

Payoff of Put = ( Spot rate at Expiration - Excercise price)*Notional amount of Loan*days/360

=(7.8%-6.6%)*7800000*180/360

=$46800

So payoff of Put would be $46800

jeff jeffy answered 2 years ago

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