Asked by
Duane Hodgson
on Nov 06, 2024
Verified
Loan guarantees include an implicit call option.
Loan Guarantees
Agreements in which a third party (the guarantor) agrees to repay the debt or perform an obligation if the debtor defaults.
Implicit Call Option
An option embedded in an investment that gives the holder the right but not the obligation to undertake certain actions under specific conditions.
- Comprehend the implications of loan guarantees and their relation to call options.
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Learning Objectives
- Comprehend the implications of loan guarantees and their relation to call options.