tarunajwani

zoya Wrote:
-------------------------------------------------------
> I got another one for you all.
> Question number 35, reading 54:
>
> Jokinen states:
> "If interest rates rise and volatility is
> unchanged, the value of a callable bond should
> decrease"
>
> Correct / incorrect?
>
> Isnt this a bit iffy tho? Interest rates rise, so
> bond values fall, ok.
> But, as interest rates rise, the (negative!) value
> of the call decreases, right? As the likelihood of
> the call being exercised decreases, yes?
>
> So how can we conclusively say that this statement
> is correct, as the book tells us.


it specifically says that volatility is unchanged so it will be treated like a non-callable( even though it inst) its just coz interest rate movement will not effect the price of the call option and keeping the call option price constant the bond price will decrease...

that's how i put it together correct me if i am wrong