Explanation

The investor's conclusion is not accurate because the price of the callable bond will decrease with an increase in interest rate volatility.

Callable Bond Price Sensitivity:

• When interest rate volatility increases, the value of the embedded call option increases
• This call option benefits the issuer, not the bondholder
• Higher volatility means there's greater probability that interest rates will fall significantly, allowing the issuer to call the bond and refinance at lower rates
• As the call option becomes more valuable to the issuer, the bond becomes less valuable to investors
• Therefore, callable bond prices decrease with increased interest rate volatility

Putable Bond Price Sensitivity:

• When interest rate volatility increases, the value of the embedded put option increases
• This put option benefits the bondholder
• Higher volatility means there's greater probability that interest rates will rise significantly, making the put option more valuable as protection
• Therefore, putable bond prices increase with increased interest rate volatility

The investor incorrectly assumed both bonds would rise in price, but only putable bonds benefit from increased volatility.