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Basic Question 13 of 24
Which of the following statements is the LEAST ACCURATE with respect to the price volatility characteristics for putable bonds?
B. At yield levels above that of the coupon rate, putable bonds become extremely sensitive to small changes in yield.
C. The price of a putable bond can never become lower than the price of an equivalent non-putable bond.
D. For low levels of yield, the price volatility characteristics of a putable bond will mirror those of an equivalent non-putable bond.
A. The yield on a non-putable bond can never become higher than the yield on an equivalent non-putable bond.
B. At yield levels above that of the coupon rate, putable bonds become extremely sensitive to small changes in yield.
C. The price of a putable bond can never become lower than the price of an equivalent non-putable bond.
D. For low levels of yield, the price volatility characteristics of a putable bond will mirror those of an equivalent non-putable bond.
User Contributed Comments 5
| User | Comment |
|---|---|
| steved333 | why would a putable bond be cheaper than its non-putable counterpart??? |
| steved333 | oh I see. LEAST accurate... |
| Richie188 | exercise price for a putable bond is normally the par value. as the yield goes above the coupon rate, the price of the putable bond gets very close to the exercise price and becomes insensitive to further yield changes. |
| jpducros | see next chapter |
| johntan1979 | Picturing the graph will help eliminate C and D instantly, and A is to test our intelligence. Non-putable vs non-putable... nice try |
I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!
Barnes
Learning Outcome Statements
explain why effective duration and effective convexity are the most appropriate measures of interest rate risk for bonds with embedded options
calculate the percentage price change of a bond for a specified change in benchmark yield, given the bond's effective duration and convexity
CFA® 2024 Level I Curriculum, Volume 4, Module 13.