You can hedge against an increase in interest rates by buying a ____ option on a bond or by buying _____ option on interest rates.
A) call; a call
B) call; a put
C) put; a call
D) put; a put
E) call; either a call or put

Question

Quizplus · Accepted Answer

Buying a put option on a bond allows you to profit if bond prices fall (which happens when interest rates rise). Buying a call option on interest rates allows you to profit if interest rates increase.

You Can Hedge Against an Increase in Interest Rates by Buying