George Cahill, a portfolio manager, has identified three five-year annual coupon bonds issued by a sovereign government.
Question:
George Cahill, a portfolio manager, has identified three five-year annual coupon bonds issued by a sovereign government. The three bonds have identical characteristics. The exceptions are that Bond A is an option-free bond; Bond B is callable at par two years and three years from today; and Bond C is also callable at par two years and three years from today as well as putable at par one year from today.
Relative to the value of Bond A, the value of Bond B is:
A. Lower.
B. The same.
C. Higher.
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Step by Step Answer:
A is correct Bond B is a callable bond and Bond A is the underlying optionfree stra...View the full answer
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