The Payoff of a Credit Spread Call Option Increases as the Yield

question 70

True/False

The payoff of a credit spread call option increases as the yield spread on a specified benchmark bond increases above some exercise spread.

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Definitions:

Predetermined Overhead Rate

A rate used to allocate manufacturing overhead to individual units of output on the basis of some common activity, such as machine-hours or labor hours.

Labor Cost

The total expense incurred by a company for the compensation of its employees.

Machine-Hours

A measure of the amount of time a machine is operated, used in cost accounting to allocate machine-related expenses to products.

Multiple Overhead Rate

A costing method that uses more than one overhead rate to allocate indirect costs to products more accurately.