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Portfolio Analysis Test 1

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A municipal bond carries a coupon of 6 3/4 and is trading at par. What is the equivalent taxable yield to a taxpayer in a combined federal plus state 34% tax bracket?
The equivalent taxable yield is: 6.75% / (1 − 0.34) = 10.23%
Which is the most risky transaction to undertake in the stock index option markets if the stock market is expected to increase substantially after the transaction is completed?
A) Write a call option
B) Write a put option
C) Buy a call option
D) Buy a put option
A) Writing a call option... entails unlimited potential losses as the stock price rises
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