As interest rates increase, the writer of a bond call option stands to make
A)limited gains.
B)limited losses.
C)unlimited losses.
D)unlimited gains.
E)limited gains and limited losses.

Question

Quizplus · Accepted Answer

When interest rates increase, the value of bonds typically decreases. A call option on a bond gives the holder the right to buy the bond at a specific price. If the bond's value decreases, it's less likely the option will be exercised, leading to limited gains for the writer of the call option.

As Interest Rates Increase, the Writer of a Bond Call