The Value of an Interest Rate Call Option

question 120

Multiple Choice

The value of an interest rate call option

• A) varies directly with the price of the underlying corporate bond.
• B) increases when the yield on the underlying Treasury security rises.
• C) is based on the market price of U. S. Treasury securities.
• D) decreases when the price of U.S. Treasuries decreases.

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Definitions:

Amortization Methods

Techniques used to gradually write off the initial cost of an intangible asset over its useful life.

Amortization

The gradual reduction of a debt over a specified period of time through regular payments of principal and interest.

Retire Bonds

The process of paying off bond indebtedness before the maturity date, thereby removing the bonds from circulation.

Company

An organization engaged in commercial, industrial, or professional activities, structured as a legal entity.