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Basic Question 7 of 15
If the level of the interest rates goes down, which value(s) will rise?
II. The value of a call option.
III. The value of a put option.
I. The value of a callable bond.
II. The value of a call option.
III. The value of a put option.
User Contributed Comments 4
| User | Comment |
|---|---|
| Rva100 | If the value of a call option rises, wouldn't the value of a callable bond decrease? |
| davidt876 | i'm with you Rva. the question's wrong: value of callable bond = value of straight bond - value of call option also who wants to pay more for a callable bond when rates are falling and it's ever more likely that the issuer will call the bodn and refinance at lower rates?? but tbh i like all the errors, keeps u on ur toes |
| michaelcfa | The question is correct. Interest rates affect BOTH the value of the bond and the value of the option. When they go down, the value of a bond will increase (bigger impact), and the value of a call option will increase too (smaller impact). The value of a callable bond will increase. |
| davidt87 | yeeeaaa i see that now |
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.