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Answer: Both
**Correct answer: D. Both** - **Statement I is true**: a make-whole call price is based on the present value of remaining cash flows discounted at a Treasury-based rate, so when Treasury rates fall, the make-whole price rises, and when rates rise, it falls. - **Statement II is true**: relative to a fixed-price call, a make-whole call is more protective of bondholders, so the issuer must effectively provide more compensation for the call privilege. Therefore, **both statements are true**.
Author: Manit Arora
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Question 196.4. Consider two statements about a corporate bond with a make-whole call provision:
I. The make-whole call price floats inversely with the level of Treasury (interest) rates
II. Compared to a similar bond but with a fixed-price call provision, the make-whole call provision increases the upfront compensation required by bondholders
Which of the statements is (are) TRUE?
A
Neither
B
I. only
C
II. Only
D
Both
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