1. Ignoring transaction costs, discuss and explain about option’s moneyness when a put (call) option is in-the-money (ITM), at-the-money (ATM), and out-of-the-money (OTM).
2. A 6.6 percent corporate coupon bond is callable in five years for a call premium of one year of coupon payments. Assuming a par value of $1,000, what is the price paid to the bondholder if the issuer calls the bond?