- CFA Exams
- CFA Exam: Level II 2021
- Study Session 13. Fixed Income (2)
- Reading 34. Valuation and Analysis of Bonds with Embedded Options
- Subject 1. Overview of Embedded Options
CFA Practice Question
If interest rates goes down, which embedded option will benefit bondholders?
B. put options
C. extension options
A. call options
B. put options
C. extension options
Correct Answer: C
In this case bondholders can choose to keep the bond for a number of years after maturity. This relatively rare type of bond works to the advantage of investors during periods of declining interest rates.
User Contributed Comments 1
| User | Comment |
|---|---|
| connor15 | Investors purchase extendable bonds in order to take advantage of changing interest rates without assuming the risk involved with a long-term bond. |