The Premium on a Credit Spread Call Option Is the Maximum

question 57

True/False

The premium on a credit spread call option is the maximum potential loss to the buyer of the option when the credit spread increases.

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Definitions:

Accounts Receivable

Funds that customers owe to a company for products or services provided but not yet compensated for.

Accounts Payable

Money owed by a company to its creditors for goods or services that have been delivered or used, but not yet paid for.

Inventory

The total amount of goods and materials held by a company that are ready for sale or in the process of being produced.

Common Stock

A type of equity security that represents ownership in a corporation, giving holders voting rights and a share of the profits.