1. A bank will receive T+50 versus libor or pay T+45 versus Libor. For a $100 million, 10-year swap what is the approximate profit that a bank earns by entering into both a fixed rate and an offseting floating rate swap?
2. A trader is thinking of underwriting (selling) some calls and(or) puts on a single share of stock in GoodInvestment, Inc. and requires assistance in determining the appropriate prices. Assume capital markets are perfect and that the risk free rate is 10%.
1. Show that the price of a K-call on a single share of Investinus, Inc. must be decreasing in K.
2. Show that the price of a K-put on a single share in Investinus, Inc. must be increasing in K.