23-82 Credit Spread Call Options Are Useful Because

question 2

Multiple Choice

23-82 Credit spread call options are useful because

• A)its value increases as the risk premium on a specified benchmark bond of the borrower increases above some exercise spread.
• B)an increase in the value of the call option will tend to offset the decreasing value of an FI's loan and net worth as the credit quality of the borrower decreases.
• C)they will always cause a loss at least equal to the required premium on the option.
• D)All of the above.
• E)Answers A and B only.

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Definitions:

Convenience Sample

A non-random sample selected because of its accessibility and ease of inclusion in the study, not representing the whole population accurately.

Judgment Sample

A sampling technique where the samples are selected based on the judgment of the researcher, rather than random selection.

Random Sample

A subset of a statistical population in which each member has an equal chance of being chosen, used to make inferences about the whole population.

Correlation

A metric that shows how much two or more variables move in relation to each other.