PRMIA 8006 Exam With Confidence Using Practice Dumps

Choice 'b' is the correct answer. The other relationships are not correct.

The price of a treasury bill can be calculated as [Future value / (1 + yield x days-to-maturity/365)] = 100/(1+5%*90/365) = $98.78.

A covered call is an attempt to earn premium income by selling calls while protecting against the downside by holding long the underlying. In case prices rise, the holder of the covered call can give away the held underlying. In case prices fall or stay below the strike price of the sold call, the holder of the covered call gets to keep the premium.

The holder of the covered call will suffer a loss if the price of the underlying declines due to the long position held in the underlying. However, these losses will be partly offset by the premiums earned on the calls sold.

Choice 'd' does not represent a correct statement as in the event of a rise in the price of the underlying the holder of the covered call will lose any upside, but will not have unlimited losses. In the event of a decline in stock prices, his losses will be equal to the loss on the underlying, minus the premium earned.