Which of the Following Isnot True of a Swaption, I

question 11

Multiple Choice

Which of the following isnot true of a swaption, i.e., an option on a swap?

• A) A swaption is always less valuable than the underlying swap.
• B) A swaption's value is always non-negative.
• C) A payer swaption is worth less than a cap with caplets on the same dates as the swap underlying the swaption.
• D) A swaption's value increases with interest rate volatility irrespective of which side of the underlying swap one may be on.

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Definitions:

Minimum Rental Payments

The lowest amount of payment due under a lease agreement, which includes both the principal and interest components for a lease.

Latest Balance Sheet

The most recent statement of a company’s financial position, showing assets, liabilities, and equity at a specific point in time.

Succeeding Fiscal Years

The periods following the current fiscal year, typically referring to future financial or budgetary planning years.

Lessor's Implicit Rate

The interest rate a lessor effectively charges a lessee in a lease agreement, often used to calculate the present value of minimum lease payments.