A fixed income security that provides a call option to the issuer has what effect on...
A fixed income security that provides a call option to the issuer has what effect on the overall risk of the asset?
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The risk of the asset is decreased to the issuer, but increased to the investor because the issuer can repurchase the security when rates increase. |
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The risk of the asset is decreased to the issuer, but increased to the investor because the issuer can repurchase the security when rates decrease. |
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The risk of the asset is decreased to the investor, but increased to the issuer because the issuer can repurchase the security when rates increase. |
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The risk of the asset is decreased to the investor, but increased to the issuer because the investor can repurchase the security when rates increase. |
Homework Answers
The risk of the asset is decreased to the issuer, but increased to the investor because the issuer can repurchase the security when rates decrease.
A call option provides the right to issuer to call back the fixed income security when rates decline. This reduces the risk of the issuer as the issuer can call back the security.
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A fixed income security that provides a call option to the
issuer has what effect on...
What factors impact the risk of a fixed income security (such as a bond)? The risk...
What factors impact the risk of a fixed income security (such as a bond)? The risk of a security is impacted by the provisions related to options available to the issuer. The risk of a security is impacted by the provisions related to options available to the investor. The risk of a security is impacted by the default risk of the issuer. All of the above impact the underlying risk of the security.
EXplain 21, and 22.*(DOUBLE-WEİGHD Suppose a call option on a given stock has premium $4 per share, and the put option at the same exercise price (E-$100) has premium $3 per share. The price of a...
EXplain 21, and 22.*(DOUBLE-WEİGHD Suppose a call option on a given stock has premium $4 per share, and the put option at the same exercise price (E-$100) has premium $3 per share. The price of a Treasury security having the same maturity as the option is.9800 (dollars per face). a. What would you expect the price of the underlying security to be? b. Illustrate with a graph the profit or payoff profile that would result from a "covered call" (write...
Question B2. inaurfkses) Suppose a call option with an exercise price of $100 for 1 y/...
Question B2. inaurfkses) Suppose a call option with an exercise price of $100 for 1 y/ 3% coupon Australian government bonds can be purchased at $10. a) Draw the option's payoff line, indicating when the option is in-, at- and out-of-the-money b) Suppose you decided to long this option. Explain briefly in which direction bond yields c) Would a typical bank increase or decrease its interest rate risk by buying the above call and at which bond price it breaks...
A European call option has a strike price of $20 and an expiration date in six...
A European call option has a strike price of $20 and an expiration date in six months. The premium for the call option is $5. The current stock price is $25. The risk-free rate is 2% per annum with continuous compounding. What is the payoff to the portfolio, short selling the stock, lending $19.80 and buying a call option? (Hint: fill in the table below.) Value of ST Payoff ST ≤ 20 ST > 20 How much do you pay...
17. If an investor has paid extra money during application and allotment, before a call is...
17. If an investor has paid extra money during application and allotment, before a call is made, what is that amount called? 18. Where is that amount shown in the balance sheet? 19. How is the account adjusted at the time of call? 20. Companies distribute bonus shares because of this advantage 21. If a shareholder has not paid the call money due on his share, what is it called? 22. How is it shown in the balance sheet? 23....
4. Interest rates and their effect on corporate profits and investment prices Interest rates affect corporate...
4. Interest rates and their effect on corporate profits and investment prices Interest rates affect corporate profits and security prices. Based on your understanding of the relationship between interest rates and corporate profits and security prices, identify which of the following statements is true and which are false. True False Ststements The higher the interest rate on a firm's debt, the lower will be the firm's profits, all other considerations remaining constant. An increase in the interest rate paid by...
Opion Raitr Call Option sold has the following details. The stock price is $49, the 100,000...
Opion Raitr Call Option sold has the following details. The stock price is $49, the 100,000 Stocks the nsk-free rate is 5%, the stock price volatility is 20%, and the time 20 weeks or 20/52 year. Table below shows Delta, Gamma, Vega, Theta, position in one option) to and Rho for the option (i e, for a long Single Option Value (S) Delta (per $) Gamma (per S) Vega (per %) Theta (per day) Rho (per %) $2.40 0.522 0.066...
16. A call option has X-$45 and expire in 115 days. The risk-free rate is 4.5%....
16. A call option has X-$45 and expire in 115 days. The risk-free rate is 4.5%. The call is priced at $9.00. A put option has X-$45 and is priced at $3.75. The underlying asset is priced at $50. Which of the following statement is correct? A. There is no arbitrage opportunity B. There is arbitrage loss and whoever invest will lose a lot C. There is arbitrage profit and whoever invest will gain a lot D. It cannot be...
The current price of a stock is $31.50 per share, and six-month European call options on...
The current price of a stock is $31.50 per share, and six-month European call options on the stock with a strike price of $32.50 are currently trading at $3.60. An investor, who has $10,000 of capital to invest, believes that the price of the stock will increase by 20% over the next six months. The investor is trying to decide between two strategies - buying shares or buying call options. What return will each strategy produce after six months, if...
Assuming gas molecules in a container with a movable end (a piston), what effect will each...
Assuming gas molecules in a container with a movable end (a piston), what effect will each of following changes have on the specified variable? 1-The effect on pressure when more gas molecules are added with the volume and temperature held constant. 2-The effect on pressure when the temperature is increased with the volume and number of molecules of gas held constant. 3- The effect on pressure when the volume is increased with the temperature and number of molecules of gas...
EXplain 21, and 22.*(DOUBLE-WEİGHD Suppose a call option on a given stock has premium $4 per share, and the put option at the same exercise price (E-$100) has premium $3 per share. The price of a Treasury security having the same maturity as the option is.9800 (dollars per face). a. What would you expect the price of the underlying security to be? b. Illustrate with a graph the profit or payoff profile that would result from a "covered call" (write...
Question B2. inaurfkses) Suppose a call option with an exercise price of $100 for 1 y/ 3% coupon Australian government bonds can be purchased at $10. a) Draw the option's payoff line, indicating when the option is in-, at- and out-of-the-money b) Suppose you decided to long this option. Explain briefly in which direction bond yields c) Would a typical bank increase or decrease its interest rate risk by buying the above call and at which bond price it breaks...
17. If an investor has paid extra money during application and allotment, before a call is made, what is that amount called? 18. Where is that amount shown in the balance sheet? 19. How is the account adjusted at the time of call? 20. Companies distribute bonus shares because of this advantage 21. If a shareholder has not paid the call money due on his share, what is it called? 22. How is it shown in the balance sheet? 23....
4. Interest rates and their effect on corporate profits and investment prices Interest rates affect corporate profits and security prices. Based on your understanding of the relationship between interest rates and corporate profits and security prices, identify which of the following statements is true and which are false. True False Ststements The higher the interest rate on a firm's debt, the lower will be the firm's profits, all other considerations remaining constant. An increase in the interest rate paid by...
Opion Raitr Call Option sold has the following details. The stock price is $49, the 100,000 Stocks the nsk-free rate is 5%, the stock price volatility is 20%, and the time 20 weeks or 20/52 year. Table below shows Delta, Gamma, Vega, Theta, position in one option) to and Rho for the option (i e, for a long Single Option Value (S) Delta (per $) Gamma (per S) Vega (per %) Theta (per day) Rho (per %) $2.40 0.522 0.066...
16. A call option has X-$45 and expire in 115 days. The risk-free rate is 4.5%. The call is priced at $9.00. A put option has X-$45 and is priced at $3.75. The underlying asset is priced at $50. Which of the following statement is correct? A. There is no arbitrage opportunity B. There is arbitrage loss and whoever invest will lose a lot C. There is arbitrage profit and whoever invest will gain a lot D. It cannot be...
The current price of a stock is $31.50 per share, and six-month European call options on the stock with a strike price of $32.50 are currently trading at $3.60. An investor, who has $10,000 of capital to invest, believes that the price of the stock will increase by 20% over the next six months. The investor is trying to decide between two strategies - buying shares or buying call options. What return will each strategy produce after six months, if...
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