A Derivatives Dealer Has a Single Transaction with a Company

question 7

Multiple Choice

A derivatives dealer has a single transaction with a company which is a long position in a five-year option.The Black-Scholes-Merton value of the option is $6.Suppose that the credit spread on five-year bonds issued by the company is 100 basis points.What is the dealer's CVA per option purchased from the counterparty?

• A) $0.19
• B) $1.19
• C) $0.29
• D) $1.29

Distinguish the effects of market changes on prices and quantities in specific scenarios.

Interpret the implications of the invisible hand concept for economic prosperity and social cooperation.

Realize the importance of competition, consumer choice, and freedom in pricing for the effective operation of markets.

Assess the impact of external events on market prices and the allocation of scarce resources.

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Definitions:

Counselor

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Negative Attitude

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Non-consensual sexual intercourse by a spouse, recognized as a criminal offense in many jurisdictions reflecting evolving societal standards on personal autonomy and consent.

Self-Blame

Self-blame is the act of holding oneself responsible for an event or situation, often negatively impacting one's mental health.