1. Which of the following methods is not used to reduce credit risk?
a. delta-gamma-vega hedging
b. collateral
c. marking to market
d. limiting the amount of business you do with a party
e. none of the above
2. Show work. Determine the value of an interest rate call option at the maturity of a loan if the call has a strike of 4%, a face value of $50 million, the loan matures 180 days after the call is exercised, the call expires in 60 days, the call premium is $100,000, and LIBOR ends up at 5%.
a. $100,000
b. $150,000
c. $200,000
d. $250,000
e. None of the above