Question: Credit spread call options are useful because a. Their values increase as the risk premium on a specified benchmark bond of the borrower increases above

Credit spread call options are useful because

a.

Their values increase as the risk premium on a specified benchmark bond of the borrower increases above some exercise spread and an increase in the value of the call option will tend to offset the decreasing value of an FIs loan and net worth as the credit quality of the borrower decreases.

b.

Their values increase as the risk premium on a specified benchmark bond of the borrower decreases above some exercise spread.

c.

An increase in the value of the call option will tend to offset the increasing value of an FIs loan and net worth as the credit quality of the borrower decreases.

d.

both a and b

e.

both b and c

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