Which of the Following Holds True for the Writer of a Bond

question 45

Multiple Choice

Which of the following holds true for the writer of a bond call option if interest rates decrease?

• A)Makes profits limited to call premium
• B)Makes losses limited to call premium
• C)Potential to make large losses
• D)Potential to make unlimited profits
• E)Makes losses limited to call premium and potential to make unlimited profits

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Definitions:

Reduction Of

A decrease in amount, size, intensity, or the number of something, often referring to cost, price, or rates.

Increase

A rise in quantity, size, value, or extent.

Percent

A proportion or share in a whole, expressed as a fraction of 100.

Percentage Less

The reduced amount expressed as a fraction of a hundred.