Question #35
Reading: Reading 27 Valuation and Analysis of Bonds With Embedded Options - Anwers
PDF File: Reading 27 Valuation and Analysis of Bonds With Embedded Options - Anwers.pdf
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Question
The value of a callable bond is equal to the:
Answer Choices:
A. callable bond plus the value of the embedded call option
B. option-free bond value minus the value of the call option
C. callable bond value minus the value of the put option minus the value of the call option. Explanation The value of a bond with an embedded call option is simply the value of a noncallable (Vnoncallable) bond minus the value of the option (Vcall). That is: Vcallable = Vnoncallable – Vcall. (Module 27.1, LOS 27.b)
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