- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 29. Credit Analysis Models
- Subject 4. Valuing Risky Bonds in an Arbitrage-Free Framework
CFA Practice Question
The reason why there is a volatility impact on the fair value of an option-free corporate bond is because:
B. the implied forward rates are asymmetrical.
C. liquidity and tax differences are not built in the model.
A. interest rates are spread out around the implied forward rate for each date.
B. the implied forward rates are asymmetrical.
C. liquidity and tax differences are not built in the model.
Correct Answer: B
The asymmetry in the forward rates is produced by the log-normality assumption in the interest rate model.
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