- CFA Exams
- CFA Level I Exam
- Study Session 15. Fixed Income (2)
- Reading 46. Understanding Fixed-Income Risk and Return
- Subject 7. Interest Rate Risk and the Investment Horizon
CFA Practice Question
Holding all other factors constant, an increase in expected yield volatility will cause the price of a ______.
A. putable bond to increase
B. callable bond to increase
C. putable bond to decrease
Explanation: Increasing yield volatility increases the value of both put options and call options, which increases the value of a putable bond (which is long the put option) but decreases the value of a callable bond (which is short the call option.)
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