CFA Practice Question

CFA Practice Question

What effect will an increase in interest rate volatility have on the price of a callable bond and an increase in stock price volatility have on the premium for an equity option respectively?
A. Decrease, increase
B. Increase, decrease
C. Increase, increase
Explanation: An increase in interest rate volatility will increase the value of the embedded option within the callable bond and will therefore decrease its value. An increase in stock volatility will increase the price of the equity option.

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