Financial Management - Study Mode

[#896] An effect of interest rate risk and investment risk on a bond's yield is classified as
Correct Answer

(C) maturity risk premium

Explanation

Solution: An effect of interest rate risk and investment risk on a bond's yield is classified as maturity risk premium. A maturity risk premium is the amount of extra return you'll see on your investment by purchasing a bond with a longer maturity date.

[#897] Coupon payment of bond which is fixed at time of issuance
Correct Answer

(A) remains same

[#898] According to Black Schools model, stocks with call option pays the
Correct Answer

(B) no dividends

[#899] An exercise of option in future and part of option call value depends specifically on
Correct Answer

(A) PV of exercising cost

[#900] Yield on Treasury bill with a maturity is classified as a risk free rate but must be equal to an
Correct Answer

(C) option expiration

Explanation

Solution: Yield on Treasury bill with a maturity is classified as a risk free rate but must be equal to an option expiration. An expiration date in derivatives is the last day that a derivative, such as options or futures, is valid.