Question #37
Reading: Reading 27 Valuation and Analysis of Bonds With Embedded Options - Anwers
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Question
Which bonds would have its maturity-matched rate as its most critical rate?
Answer Choices:
A. High coupon callable bonds
B. Low coupon putable bonds
C. Low coupon callable bonds. Explanation Callable bonds with low coupon rate are unlikely to be called; hence, their maturity- matched rate is their most critical rate (i.e., the highest key rate duration corresponds to the bond's maturity). Similarly, putable bonds with high coupon rates are unlikely to be put and are most sensitive to their maturity-matched rates. (Module 27.6, LOS 27.k)
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