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:

Fixed Costs

Costs that do not vary with the level of production or sales, such as rent, salaries, and insurance, remaining constant regardless of the business activity.

AVC

Average Variable Cost is the total variable costs divided by the quantity of output, representing the variable cost per unit of output.

MC = MR

An economic principle stating that to maximize profits, firms should produce up to the point where marginal cost equals marginal revenue.

MC = MR

The principle that profit maximization occurs when a firm's marginal cost (MC) equals its marginal revenue (MR).