Using Options to Control Interest-Rate Risk Reduces the Chance of a Loss

question 73

True/False

Using options to control interest-rate risk reduces the chance of a loss but increases the chance of a gain.

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Definitions:

Cash Dividends

Dividends paid in the form of cash to shareholders, typically out of the company's current or retained earnings.

Retained Earnings

The portion of net income that is not distributed to shareholders as dividends, but instead reinvested in the business.

Constant Fraction

A concept in finance where a fixed percentage of an investment is allocated or rebalanced regularly to maintain a desired asset ratio.

Additional Debt

New borrowing by an individual or entity, adding to any existing obligations, and impacting financial leverage and risk profile.