CFA Practice Question

There are 252 practice questions for this study session.

CFA Practice Question

If the level of the interest rates goes down, which value(s) will rise?

I. The value of a callable bond.
II. The value of a call option.
III. The value of a put option.
Correct Answer: I and II

The value of a put option will drop.

User Contributed Comments 4

User Comment
Rva100 If the value of a call option rises, wouldn't the value of a callable bond decrease?
davidt876 i'm with you Rva. the question's wrong:

value of callable bond = value of straight bond - value of call option

also who wants to pay more for a callable bond when rates are falling and it's ever more likely that the issuer will call the bodn and refinance at lower rates?? but tbh i like all the errors, keeps u on ur toes
michaelcfa The question is correct. Interest rates affect BOTH the value of the bond and the value of the option. When they go down, the value of a bond will increase (bigger impact), and the value of a call option will increase too (smaller impact). The value of a callable bond will increase.
davidt87 yeeeaaa i see that now
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