When the Interest Rate Is 5% Per Annum with Continuous

question 3

Multiple Choice

When the interest rate is 5% per annum with continuous compounding,which of the following creates a principal protected note worth $1000?

• A) A one-year zero-coupon bond plus a one-year call option worth about $59
• B) A one-year zero-coupon bond plus a one-year call option worth about $49
• C) A one-year zero-coupon bond plus a one-year call option worth about $39
• D) A one-year zero-coupon bond plus a one-year call option worth about $29

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Definitions:

Cost Per Unit

A measure of the cost incurred in the production, creation, or acquisition of a single unit of a product or service.

Activity Level

A measure of the volume or quantity of production or operations in a business, which can significantly impact costs and budgeting.

Variable Costs

Expenses that fluctuate with the level of output or business activity.

Fixed Manufacturing Overhead

The portion of total manufacturing overhead costs that remains constant regardless of the level of production, such as factory rent or salaries of permanent staff.