1. Which of the following options on corn is least valuable? Assume the variance of return and the risk free rate are the same in all cases.
a) A call option with a strike price of $4 and 30 days to expiration when corn is trading at $4.00 per bushel.
b) A call option with a strike price of $4 and 60 days to expiration when corn is trading at $4.00 per bushel.
c) A call option with a strike price of $4 and 30 days to expiration when corn is trading at $3.00 per bushel.
d) A call option with a strike price of $4 and 60 days to expiration when corn is trading at $3.00 per bushel.
2. A swap dealer enters into a 10-year interest rate swap with firm X and another with firm Y. With firm X, the dealer receives a fixed rate of 5.4% and pays a floating rate of LIBOR + 0.85%. With firm Y, the dealer receives a floating rate of LIBOR + 0.80% and pays a fixed rate of 5.30%. What profit or loss has the dealer locked in on the trades (denoted in percentage points)? Ignore credit risk
a) Profit of 0.15%
b) Loss of 0.15%
c) Profit of 0.05%
d) Loss of 0.05%