- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 29. Credit Analysis Models
- Subject 3. Structural and Reduced Form Credit Models
CFA Practice Question
According to the option analogy, owning a company's debt is equivalent to:
B. owning a riskless debt and selling a European put option.
C. owning a European put option.
A. owning a risky debt and selling a European put option.
B. owning a riskless debt and selling a European put option.
C. owning a European put option.
Correct Answer: B
It is economically equivalent to owning a risk-less bond that pays K dollars with certainly at time T, and simultaneously selling a European put option on the assets of the company with strike price K and maturity T.
User Contributed Comments 0
You need to log in first to add your comment.