Which of the Following Holds True for the Writer of a Bond

question 32

Multiple Choice

Which of the following holds true for the writer of a bond call option if interest rates decrease?

• A)Makes profits limited to call premium
• B)Makes losses limited to call premium
• C)Potential to make large losses
• D)Potential to make unlimited profits

---

Definitions:

Real Rate

The interest rate that has been adjusted for inflation, representing the real cost of funds to the borrower and the real yield to the investor.

Coupon Rate

The annual interest rate paid by a bond issuer to the bondholders, typically expressed as a percentage of the bond's face value.

Yield To Maturity

The total return anticipated on a bond if the bond is held until its maturity date, taking into account its current market price, face value, interest rate, and time to maturity.

Semi-Annually

Occurring or conducted twice a year.