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Basic Question 11 of 15
A bond with an embedded put option is valued at $102 and the put option is estimated to be $3, given an interest rate volatility of 10%. Now suppose the interest rate volatility rises to be 20%. What is the MOST LIKELY price of the putable bond?
B. $102
C. $104
A. $100
B. $102
C. $104
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I used your notes and passed ... highly recommended!
Lauren
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.