- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 28. Valuation and Analysis of Bonds with Embedded Options
- Subject 2. Relationships between the Values of a Callable or Putable Bond, Straight Bond, and Embedded Option
CFA Practice Question
An option free bond is trading at $105. Which price is LEAST LIEKLY for a callable bond with the same maturity and credit risk?
B. $104
C. $106
A. $102
B. $104
C. $106
Correct Answer: C
The value of a callable bond for investors is lower than the value of an option-free bond, because the option is granted to the issuer. A callable bond should therefore sell for less than an otherwise similar straight bond.
User Contributed Comments 1
| User | Comment |
|---|---|
| pingpong | Investors get a discount for a callable bond. Investors are willing to pay a premium for a putable bond. |