CFA Practice Question

There are 252 practice questions for this study session.

CFA Practice Question

A bond with an embedded put option is valued at $102 and the put option is estimated to be $3, 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 putable bond?

A. $100
B. $102
C. $104
Correct Answer: C

The price of the putable bond will likely increase as the interest rate volatility goes up.

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