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Answer: the value of an option-free bond is higher than the value of a callable bond.
**Explanation:** From an investor's perspective: - **Callable bonds** have lower value than option-free bonds because the issuer can call the bond away when it's favorable to them (when rates decline), limiting the investor's upside. - **Putable bonds** have higher value than option-free bonds because the investor can put the bond back to the issuer when it's favorable to them (when rates rise), providing downside protection. - **Option-free bonds** have value between callable and putable bonds. Therefore, the correct relationship is: **Putable bond > Option-free bond > Callable bond** Option C is correct: the value of an option-free bond is higher than the value of a callable bond.
Author: LeetQuiz Editorial Team
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When comparing bonds with embedded options to option-free bonds, which of the following statements is most accurate? All else being equal, from an investor's perspective:
A
the value of a callable bond is higher than the value of a putable bond.
B
the value of an option-free bond is higher than the value of a putable bond.
C
the value of an option-free bond is higher than the value of a callable bond.
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