At the Maturity of a Bond Option, It Is Estimated

question 8

Multiple Choice

At the maturity of a bond option, it is estimated that the underlying bond will have a duration of 6 years and a yield of 5%. The forward yield volatility is quoted as 25%. What is the volatility of the forward bond price?

• A) 3%
• B) 30%
• C) 20.8%
• D) 7.5%

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Definitions:

Maslow's Theory

A psychological theory proposed by Abraham Maslow that suggests human needs are arranged in a hierarchy from physiological needs to safety, love and belonging, esteem, and self-actualization.

Self-actualization

The achievement of unlocking one’s abilities and possibilities, seen as an innate motivation or necessity found within all individuals.

Hierarchy of Needs

A theory proposed by Abraham Maslow suggesting that people are motivated by increasingly complex needs starting from basic physical necessities up to self-actualization.

Innate Need

A fundamental psychological or physiological requirement that is inherent and essential for the well-being and survival of an individual.