Chartered Financial Analyst Level 2
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In an arbitrage-free framework, the price of an option-free bond is 103.60 and the price of an otherwise identical bond with an embedded option is 102.80. An investor in the bond with an embedded option is:
In an arbitrage-free framework, the price of an option-free bond is 103.60 and the price of an otherwise identical bond with an embedded option is 102.80. An investor in the bond with an embedded option is:
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A
long a put worth 0.80.
B
short a put worth 0.80.
C
short a call worth 0.80.
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