Interest rate, call option option

w1977

Im quoting QBank:

If interest rates fall, the:

A) value of call option embedded in the callable bond falls.
B) callable bond's price rises more slowly than that of a noncallable but otherwise identical bond.
C) callable bond's price rises faster than that of a noncallable but otherwise identical bond.

I answered B. correctly only because this is a fixed income question. But isn't A just as correct? As interest rates increase, call values rise, and vice versa.



Edited 1 time(s). Last edit at Sunday, October 25, 2009 at 10:53AM by nudge.