CFA Practice Question

There are 252 practice questions for this study session.

CFA Practice Question

A bond with an embedded call option is valued at $102 and the call option is estimated to be $5, 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 callable bond?
A. $100
B. $102
C. $104
Explanation: The price of the callable bond will likely drop as the interest rate volatility goes up.

User Contributed Comments 2

User Comment
JChewL2 If bond volatility increases, should the value of the embedded option increase, too? Is volatility inversely correlated with bond price?
JChewL2 disregard
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