The Safest Way to Hedge a Bond Liability with Options

question 61

Multiple Choice

The safest way to hedge a bond liability 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:

Acquiring Firms

Companies that purchase the majority of equity shares of another company in order to take control of it.

Debt Restructuring

The process of negotiating and agreeing to new terms for debts with creditors to achieve some reduction in the financial burden.

Equity

The value of an ownership interest in property, including shareholders' equity in a company, which represents assets minus liabilities.

Top Management

The highest level of managers in an organization, including positions like CEO and CFO, responsible for setting strategic goals and company policies.