A Rise in Short-Term Interest Rates That Is Believed to Be

question 18

Multiple Choice

A rise in short-term interest rates that is believed to be only temporary

• A)is likely to have a significant effect on long-term interest rates.
• B)will have a bigger impact on long-term interest rates than if the rise in short-term rates had been permanent.
• C)is likely to have only a small impact on long-term interest rates.
• D)cannot possibly affect long-term interest rates.

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Definitions:

Put Premium

The price that an investor pays for the right but not the obligation to sell a specified amount of an underlying asset at a predetermined price within a specified time frame.

Long Straddle

An options trading strategy that involves purchasing both a call and a put option on the same asset with the same expiration date and strike price, betting on volatility.

Call Contract

A financial derivative agreement giving the buyer the right, but not the obligation, to buy an underlying asset at a specified price before a specified date.

Break Even

The point at which total cost and total revenue are equal, meaning there is no net loss or gain.