- 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
The higher the interest rate volatility, the ______ the value of the bond call option and the ______ the value of the bond put option.
B. lower, lower
C. lower, higher
D. higher, lower
A. higher, higher
B. lower, lower
C. lower, higher
D. higher, lower
Correct Answer: A
The value of any embedded option, regardless of the type of option, increases with interest rate volatility.
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