- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 28. Valuation and Analysis of Bonds with Embedded Options
- Subject 3. Valuation of Default-Free Callable and Putable Bonds
CFA Practice Question
A bond with an embedded put option is valued at $102 and the put option is estimated to be $3, given an interest rate volatility of 10%. Now suppose the interest rate volatility rises to be 20%. What is the MOST LIKELY price of the putable bond?
B. $102
C. $104
A. $100
B. $102
C. $104
Correct Answer: C
The price of the putable bond will likely increase as the interest rate volatility goes up.
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