- CFA Exams
- CFA Exam: Level II 2021
- 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

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**CFA Practice Question**

In the binomial model a bond is called if:

B. the present value of its future cash flows is more than the call price.

C. the present value of its future cash flows is less than its market price.

A. the bond's market price is less than the call price.

B. the present value of its future cash flows is more than the call price.

C. the present value of its future cash flows is less than its market price.

Correct Answer: B

The issuer will exercise the call option if the present value of its future cash flows is higher than the call price.

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