A Digital Default Option

question 58

Multiple Choice

A digital default option

• A)always pays the par value of a loan if exercised.
• B)has a payout that is capped at 80 percent of the par value of the loan.
• C)will cause the FI never to lose more than the premium paid to purchase the option.
• D)Answers A and C only.
• E)Answers A and B only.

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Definitions:

Amortization of Prior Service Costs

The process of gradually writing off the initial costs of services received or obligations incurred in the past, over the service periods of the involved employees.

Pension Accounting and Reporting

The process of recording and communicating information regarding a company's pension obligations and related costs in its financial statements.

Fund Asset Gains and Losses

Changes in the value of investment holdings in a fund that impact its overall performance.

Expected Rate of Return

The anticipated return on an investment over a specific period, taking into account both the risk of the investment and historical performance trends.