Question #94

Reading: Reading 27 Valuation and Analysis of Bonds With Embedded Options - Anwers

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Page: 41

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Part of Context Group: Q93-94
Shared Context
- 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: A) may increase or decrease. B) increases. C) decreases. Explanation All option values increase when the volatility of the underlying asset increases. (Module 27.2, LOS 27.f)
Question
Wall now turns his attention to the value of the embedded call option. How does the value of the embedded call option react to an increase in interest rates? The value of the embedded call is most likely to:
Answer Choices:
A. increase
B. remain the same
C. decrease. Explanation
No explanation available for this question.
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