The buyer of a bond call option stands to make a positive payoff if changes in market interest rates cause the bond price to rise above the exercise price by enough to recoup the call premium paid for the option.

Question

Quizplus · Accepted Answer

This statement is true. A bond call option gives the buyer the right to purchase a bond at a specified exercise price before the option expires. If the bond price rises above the exercise price, the buyer can purchase the bond at a discount and sell it for a profit. However, the buyer must recoup the premium paid for the option before making a positive payoff.

The Buyer of a Bond Call Option Stands to Make