Which of the Following Statements About Real and Nominal Interest

question 85

Multiple Choice

Which of the following statements about real and nominal interest rates is correct?

• A)Real interest rates can be either positive or negative,but nominal interest rates must be positive.
• B)Real interest rates and nominal interest rates must be positive.
• C)Real interest rates must be positive,but nominal interest rates can be either positive or negative.
• D)Real interest rates and nominal interest rates can be either positive or negative.

Know the impact of time to expiration on the value of call options.

Understand the impact of volatility on the value of call options.

Recognize the effect of the risk-free rate of return on call option value.

Distinguish between American and European options in the context of the Black-Scholes Model.

---

Definitions:

Yield To Call

The total return anticipated on a bond if it is held until the date it is called by the issuer, including interest payments and the call price.

Call Price

The price at which a bond or other financial security can be repurchased by the issuer before its maturity date, as specified in the callable feature.

Par-value

The nominal or face value of a bond, share of stock, or other financial instrument, representing the value at which it will be redeemed at maturity.