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LOS n: Explain how yield volatility affects the price of a bond with an embedded option and how changes in volatility affect the value of a callable bond and a putable bond.
Q1. Tina Donaldson, CFA candidate, is studying yield volatility and the value of putable bonds. She has the following information: a putable bond with a put option value calculated at 0.75 (prices are quoted as a percent of par) and a straight bond similar in all other aspects priced at 99.0. Donaldson also wants to determine how the bond’s value will change if yield volatility decreases. Which of the following choices is closest to what Donaldson calculates as the value for the putable bond and correctly describes the bond’s price behavior as yield volatility decreases?
A) 99.75, price increases.
B) 98.25, price decreases.
C) 99.75, price decreases.
Q2. Which of the following statements is TRUE for both callable and putable bonds?
A) When yield volatility increases, the value of the option increases.
B) The value of the bond is equal to the value of a similar straight bond plus the value of the option.
C) When yield volatility increases, the value of the bond increases.
Q3. Which of the following statements concerning the effects of interest rate volatility on bonds with embedded options is least accurate?
A) A putable bond's value is its straight bond value plus the value of the embedded put option.
B) A callable bond's value is its straight bond value plus the value of the embedded call option.
C) As yield volatility increases, the value of callable bonds decreases.
Q4. Which of the following statements about embedded options and yield volatility is FALSE?
A) Putable bondholders benefit from increases in yield volatility.
B) As yield volatility increases, the value of the call option increases along with the value of the callable bond.
C) A call option benefits the issuer and a put option benefits the holder.
Q5. Simone Girard, CFA candidate, is studying yield volatility and the value of callable bonds. She has the following information: a callable bond with a call option value calculated at 1.25 (prices are quoted as a percent of par) and a straight bond similar in all other aspects priced at 98.5. Girard also wants to determine how the bond’s value will change if yield volatility increases. Which of the following choices is closest to what Girard calculates as the value for the callable bond and correctly describes the bond’s price behavior as yield volatility increases?
A) 97.25, price increases.
B) 99.75, price decreases.
C) 97.25, price decreases.
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发表于 2009-3-2 16:04
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