Answer: equal to the value of the option-embedded bond.

## Explanation **Correct Answer: B** In the arbitrage-free valuation framework: **Value of option-embedded bond = Value of option-free bond + Value of embedded options** This relationship holds because: - The option-embedded bond can be decomposed into its component parts - The option-free bond represents the base bond without any optionality - The embedded options (calls, puts, etc.) have their own separate values - The sum of these components equals the total value of the bond with embedded options **Why this is important:** - This decomposition allows for proper valuation of complex bonds - It ensures no arbitrage opportunities exist in the market - Each component is valued using appropriate discount rates and models

Author: LeetQuiz Editorial Team