Suppose that a money manager knows that bonds are maturing in the near future and expects interest rates to fall. ________ can be purchased in this situation.

Question

Quizplus · Accepted Answer

When interest rates are expected to fall, bond prices will rise. By purchasing call options, the money manager can control a large amount of bonds at a relatively low cost, allowing them to benefit from the expected price increase without having to invest a large amount of capital upfront. Additionally, if interest rates do not fall as expected, the money manager can allow the call options to expire, limiting their losses to the premium paid for the options.

Suppose That a Money Manager Knows That Bonds Are Maturing