If the Underlying Is Considered a Fixed-Income Instrument, Its Value

question 36

Multiple Choice

If the underlying is considered a fixed-income instrument, its value changes inversely with interest rates. Therefore, for a call option on a fixed-income instrument: ________.

• A) interest rates increase => fixed-income instrument's price decreases => put option's value increases
• B) interest rates increase => fixed-income instrument's price decreases => call option's value decreases
• C) interest rates decrease => fixed-income instrument's price increases => put option's value decreases
• D) All of these

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Definitions:

Firm Offer

In contract law, a proposal made by a seller to supply goods or services at a fixed price, which cannot be withdrawn for a certain period.

Consideration

Something of value exchanged between parties in a contract that induces them to enter into the agreement.

Bargained-For Exchange

An exchange of promises or performance by parties to a contract that provides the consideration necessary to make the contract legally enforceable.

Breach of Contract

The violation of any term or condition of a binding legal agreement, which may result in legal action for remedy.