The Safest Way to Hedge a Bond Asset with Options

question 54

Multiple Choice

The safest way to hedge a bond asset with options is to

• A)purchase a call option on the bond.
• B)write a call option on the bond.
• C)purchase a put option on the bond.
• D)write a put option on the bond.
• E)None of the options are correct.

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Definitions:

Stockholders' Equity

Stockholders' Equity is the residual interest in the assets of a corporation that remains after deducting its liabilities, representing ownership interest in a company.

Net Income

The total earnings or profit of a company after deducting all expenses, taxes, and losses from the total revenue.

Retained Earnings

The portion of net income that is retained by the company rather than distributed to its shareholders as dividends.

Cash Dividend

A payment made by a corporation to its shareholders, usually as a distribution of profits in the form of cash.