Which of the Following Statements Is CORRECT

question 78

Multiple Choice

Which of the following statements is CORRECT?

• A) a bond is likely to be called if its market price is below its par value.
• B) even if a bond's ytc exceeds its ytm, an investor with an investment horizon longer than the bond's maturity would be worse off if the bond were called.
• C) a bond is likely to be called if its market price is equal to its par value.
• D) a bond is likely to be called if it sells at a discount below par.
• E) a bond is likely to be called if its coupon rate is below its ytm.

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Definitions:

Black-Scholes Option-pricing Model

A mathematical model for pricing European call and put options, using factors like the stock's price, exercise price, risk-free rate, and time to expiration.

Dividend Payouts

Distributions made to shareholders by a company, typically from earnings.

Time Value

The portion of an option's price that exceeds its intrinsic value, representing the potential for additional value based on time remaining until expiration.

Out-of-the-money

A term used in options trading to describe an option that would not profit if exercised immediately, i.e., a call option with a strike price above the underlying asset's price or a put option below it.