Writing a call option on a bond pays off if interest rates decrease.

Name: Writing a call option on a bond pays off if interest rates decrease.
Brand: Quizplus
Rating: 4.7 (44 reviews)

Question

Quizplus · Accepted Answer

Writing a call option on a bond means you give someone else the right to buy the bond from you at a predetermined price. If interest rates decrease, bond prices increase, making it more likely that the call option will be exercised against you, leading to a potential loss if you have to sell the bond for less than its increased market value.

Writing a Call Option on a Bond Pays Off If