CFA Practice Question

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CFA Practice Question

When interest rates are high relative to a bond's coupon, the effective duration of a callable bond should be ______ that of an otherwise identical straight bond.

A. higher than
B. similar to
C. lower than
Correct Answer: B

The call option is out of money in this case. It has very little impact on effective duration.

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User Comment
khalifa92 tricky question to end this LOS, stay awake in the exam.
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