Question on Compounding premium of Interest rate option

[archived_user]

I am reviewing Study Session 15 Risk Management Applications of Option Strategies - Interest Rate Options. CFAI Book Page 309, Using Interest Rate with Borrowing.
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$100,000[1+0.075(128/360)]=$102,667
I do not really understand why we compound the premium using that rate. Anyone could explain?

 

[archived_user]

you are buying the call option today - so that you can exercise it X days later. And it is LIBOR + Spread.
And you get the Loan X days later.
So X days later - you are getting (Loan Amount - what the Call Premium would be X days later)

 

[archived_user]

Thank you for your reply! What is the intuition behind using LIBOR+Spread to calculate the future value of call option premium? Why can’t we use a risk free rate?