( d ) Call options generally sell at prices above their exercise value , but for an inthemoney option , the greater the exercise value in relation to the strike price , the lower the premium on the option is likely to be .
( e ) Because of the put-call parity relationship , under equilibrium conditions a put option on a stock must sell at exactly the same price as a call option on the stock .
6 . Question : ( TCO F ) Suppose the December CBOT Treasury bond futures contract has a quoted price of 80-07 . What is the implied annual interest rate inherent in the futures contract ? Assume this contract is based on a 20 year Treasury bond with semi-annual interest payments . The face value of the bond is $ 1000 , and the semiannual coupon payments are $ 30 . The annual coupon rate on the bonds is $ 60 per bond ( or 6 %). The futures contract has 100 bonds .
( a ) 6.86 % ( b ) 7.22 % ( c ) 7.60 % ( d ) 8.00 % ( e ) 8.40 %