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Bond 3 is a putable bond, and the value of a put option increases as interest rates rise. At higher interest rates, the value of
Bond 3 is a putable bond, and the value of a put option increases as interest rates rise. At higher interest rates, the value of the underlying option-free bond (straight bond) declines, but the decline is offset partially by the increase in the value of the embedded put option, which is more likely to be exercised.
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