A Digital Default Option Is a Call Option Whose Payoff

question 50

True/False

A digital default option is a call option whose payoff increases as a yield spread increases above a stated exercise spread.

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Definitions:

Partial Ownership

A situation where an individual or entity owns less than 100% of an asset or company, sharing ownership with others.

Tax Breaks

Financial incentives or reductions in tax payments provided to individuals or companies to encourage certain activities or investments.

State-Owned Enterprise

A business enterprise where the government holds significant control through full, majority, or significant minority ownership.

Limited Liability Firm

A type of business entity where the owners' liability for debts is restricted to the amount they invested in the company, protecting personal assets from business liabilities.