- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 46. Understanding Fixed-Income Risk and Return
- Subject 3. Properties of Bond Duration
CFA Practice Question
Which of the following statements is the LEAST accurate with respect to the price volatility characteristics for callable bonds?
A. The yield on a non-callable bond can never become higher than the yield of an equivalent callable bond.
B. At yield levels below that of the coupon rate, callable bonds become extremely sensitive to small changes in yield.
C. For high levels of yield, the price volatility characteristics of a callable bond will mirror those of an equivalent non-callable bond.
Explanation: At yield levels below that of the coupon rate, callable bonds will trade very close to their call price, irrespective of yield changes. Hence, these bonds become insensitive to small changes in yield.
User Contributed Comments 3
| User | Comment |
|---|---|
| dbalakos | What about A? Can become almost equal at high yield levels but never higher. Am I missing something here? |
| jacojacobs | Question states "sensitive" but answer states "insensitive".!? |
| Haoran | @jacojacobs: that's why the question asks the "LEAST" accurate |