Question #92

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: 29

Status: Unattempted

Part of Context Group: Q92-94 First in Group
Shared Context
- Johnson asks Wall to compute the value of the call option. Using the given information what is the value of the embedded call option? A) $0.00. B) $1.21. C) $2.04.
Question
Wall is a little confused over the relationship between the embedded option and the callable bond. How does the value of the embedded call option change when interest rate volatility increases? The value:
Answer Choices:
A. may increase or decrease
B. increases
C. decreases
No explanation available for this question.
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