Question
Which of the following statements is correct? a. If the price of the bond underlying the option rises, the buyer makes a profit, which is
Which of the following statements is correct?
a.
If the price of the bond underlying the option rises, the buyer makes a profit, which is the difference between the bond price and the exercise price of the option minus the call premium.
b.
If the price of the underlying asset/bond never rises above the exercise price, the buyer of the call exercises the option and incurs a cost, call premium, for the option.
c.
Pull to par is the tendency of the variance of a bonds price or return to remain unchanged as maturity approaches.
d.
Since the price of the bond could rise to equal the sum of the principal and interest payments, the buyer of a call is exposed to the risk of a very large loss.
e.
Since the bond price cannot be negative, the minimum loss for the writer of a put occurs when the bond price falls to zero.
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