Question #88
Reading: Reading 27 Valuation and Analysis of Bonds With Embedded Options
PDF File: Reading 27 Valuation and Analysis of Bonds With Embedded Options.pdf
Page: 28
Status: Unattempted
Question
Sharon Rogner, CFA is evaluating three bonds for inclusion in fixed income portfolio for one of her pension fund clients. All three bonds have a coupon rate of 3%, maturity of five years and are generally identical in every respect except that bond A is an option-free bond, bond B is callable in two years and bond C is putable in two years. Rogner computes the OAS of bond A to be 50bps using a binomial tree with an assumed interest rate volatility of 15%. If Rogner revises her estimate of interest rate volatility to 10%, the computed OAS of Bond B would most likely be:
Answer Choices:
A. lower than 50bps
B. equal to 50bps
C. higher than 50bps
No explanation available for this question.