- CFA Exams
- CFA Level I Exam
- Study Session 13. Fixed Income (2)
- Reading 34. Valuation and Analysis of Bonds with Embedded Options
- Subject 3. Valuation of Default-Free Callable and Putable Bonds
CFA Practice Question
A bond with an embedded put option is valued at $100 and the put option is estimated to be $5, given an interest rate volatility of 20%. Now suppose the interest rate volatility drops to be 15%. What is the MOST LIKELY price of the putable bond?
A. $98.5
B. $100
C. $102
Explanation: The price of the putable bond will likely drop as interest rate volatility goes down.
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