CFA Practice Question

There are 252 practice questions for this study session.

CFA Practice Question

A putable bond tends to trade at ______ yields of comparable straight bonds.

A. lower
B. the same
C. higher
Correct Answer: A

The holder of a putable bond is essentially long the bond and long the embedded put option. This has the effect of increasing the convexity of the price-yield relationship associated with this security and thus reduces the downside risk to the investor. This has the effect of increasing the price of the security and hence reducing the potential return to the investor.

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