Question #86
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
On a given day, a bond with a call provision rose in value by 1%. What can be said about the level and volatility of interest rates?
Answer Choices:
A. The only possible explanation is that level of interest rates fell
B. A possibility is that the level of interest rates remained constant, but the volatility of interest rates rose
C. A possibility is that the level of interest rates remained constant, but the volatility of interest rates fell. Explanation As volatility declines, so will the option value, which means the value of a callable bond will rise. (Module 27.3, LOS 27.d)
No explanation available for this question.