b. buy a strip.
Explanation:
The strip is the option strategy in which we can purchase two options and one call option at the similar strike price and the similar maturity time period. It should be considered at that case when there is high expectation in bearish as compared with the bullish.
Since in the question it is mentioned that there is more bearish than bullish so here the buy a strip would be relevant
hence, the option b is correct
The cost of debt is 10.04%
Explanation:
The cost of debt is also another way of a yield to maturity of a bond so therefore we will calculate the yield to maturity for the following problem to get the cost of debt therefore using the following formula:
Yield to maturity =[(face value/current value)(1/period to maturity)] -1
where the face value is $1000 the original bond price
current value is the value of the bond which is $908.72 which its currently selling for.
period to maturity is the period of which the bond took to mature which is not specified but we know a bonds price is valuated every year so it will be 1 year.
now we substitute to the above mentioned formula :
Yield to maturity = ($1000/$908.72)(1/1) - 1 then compute
Yield to Maturity = 0.1004489832 then we multiply by 100 for percentage
Yield to maturity = 10.04% rounded off to two decimal places,
we know the cost of debt is the interest rate at which entities pay over their loans or debts, so in this case that is the yield to maturity of a bond therefore the cost of debt is 10.04%