- CFA Exams
- CFA Level I Exam
- Study Session 13. Fixed Income (2)
- Reading 34. Valuation and Analysis of Bonds with Embedded Options
- Subject 3. Valuation of Default-Free Callable and Putable Bonds

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**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?

B. $102

C. $104

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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