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Basic Question 5 of 5
Callable bonds exhibit negative convexity at low yields because:
B. the coupon rate is higher than the yield, and the call as an option becomes valuable to the issuer.
C. callable bonds cannot exhibit positive convexity.
D. the bondholder will always receive the call price at maturity no matter what the yield is.
A. the coupon rate is lower than the yield, and the market price is controlled by the call price.
B. the coupon rate is higher than the yield, and the call as an option becomes valuable to the issuer.
C. callable bonds cannot exhibit positive convexity.
D. the bondholder will always receive the call price at maturity no matter what the yield is.
User Contributed Comments 1
| User | Comment |
|---|---|
| kalps | and therefore price increase will be capped in terms of it can only increase to a certain amount until the option is exercised by the issuer |
Thanks again for your wonderful site ... it definitely made the difference.
Craig Baugh
Learning Outcome Statements
compare effective convexities of callable, putable, and straight bonds;
CFA® 2025 Level II Curriculum, Volume 4, Module 28.