If an individual wished to lock in a future deposit rate of 8 percent in the eurodollar Interest rate options market, she should
A) purchase a call at a strike price of 92.
B) purchase a put at a strike price of 108.
C) sell a put at a strike price of 8.
D) sell a call at a strike price of 92.

Question

Quizplus · Accepted Answer

To lock in a future deposit rate, the individual should purchase a call option. The strike price should be set at a rate below the expected future rate, in order to ensure that the option will be exercised. In this case, a strike price of 92 would be appropriate as the individual wishes to lock in a rate of 8 percent, which corresponds to a 92 percent value for a 1-year eurodollar futures contract (100 - 8 = 92). Therefore, the correct choice is to purchase a call at a strike price of 92.

If an Individual Wished to Lock in a Future Deposit