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Basic Question 3 of 15
Two bonds with identical maturity, coupon size and default risk are selling at par value. The first bond is an option-free bond. The second bond is a callable bond. In response to a 100 basis point decrease in required return:
B. the price of the second will increase by more than the price of the first.
C. the price of the first will decrease by more than the price of the second.
A. the price of the first will increase by more than the price of the second.
B. the price of the second will increase by more than the price of the first.
C. the price of the first will decrease by more than the price of the second.
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I passed! I did not get a chance to tell you before the exam - but your site was excellent. I will definitely take it next year for Level II.
Tamara Schultz
Learning Outcome Statements
explain how interest rate volatility affects the value of a callable or putable bond;
explain how changes in the level and shape of the yield curve affect the value of a callable or putable bond;
calculate the value of a callable or putable bond from an interest rate tree;
CFA® 2025 Level II Curriculum, Volume 4, Module 28.