CFA Practice Question
A 8%, 30-year bond is being valued at a 4% flat yield curve with 20% interest rate volatility. The bond is putable in 10 years. Which key rate duration is the highest for this bond?
B. 10-year
C. 30-year
A. 2-year
B. 10-year
C. 30-year
Correct Answer: C
The bond has a high coupon so it is unlikely to be put. It behaves like an otherwise identical 30-year option-free bond.
User Contributed Comments 2
| User | Comment |
|---|---|
| davidt87 | if it were instead a 4% coupon bond would the answer be B? |
| CFAJ | yes because it would likely be put as soon as possible and so you should treat it like a bond with a maturity of ten years |