Five Below Zero is a new ski resort in Colorado.Five Below Zero is concerned that an abnormally warm winter will prevent the accumulation of snow needed to have a profitable ski season.Five Below Zero purchased a contract that will pay Five Below Zero a lump sum payment if the daily high temperature exceeds 30 degrees for more than 12 days between January 1st and March 31st.The contract Five Below Zero purchased is called a(n)
A)catastrophe bond.
B)weather option.
C)interest rate swap.
D)convertible bond.

Question

Quizplus · Accepted Answer

The contract that Five Below Zero purchased is a weather option, which pays out if certain weather conditions are met. Catastrophe bonds are used for insurance against natural disasters, interest rate swaps involve exchanging fixed and variable interest rates, and convertible bonds can be converted into stock.

Five Below Zero Is a New Ski Resort in Colorado