Question

As interest rate volatility decreases, which of the following bond value would increase: a callable bond, a putable bond, a convertible bond, and an exchangeable bond? List all correct answer(s).

Answer 1

When the interest rate volatility will be decreasing, it will mean that, callable bonds will be increasing in their value because they are much likely to be called from the bond issuer and they will have a higher price due to early redemption.

Exchangeable bonds are also increasing in their value due to lowering of the interest rate volatility because these bonds are likely to get exchanged as they have increased in their value.

Correct answers will be CALLABLE BONDS AND EXCHANGEABLE BONDS.