How does an embedded put option affect the price of a bond compared to a non-putable bond?
Explanation
Putable Bond Price = Non-Putable Price + Put Option Value.
Other questions
Why are Macaulay and modified durations considered inappropriate for bonds with embedded options?
What is the appropriate measure of interest rate risk for a bond with an embedded call option?
Which of the following best describes the price relationship between a callable bond and an otherwise identical non-callable bond?
The difference in price between a non-callable bond and a comparable callable bond represents:
Who bears the 'call risk' in a callable bond?
When benchmark yields are high, how do the effective durations of callable and non-callable bonds compare?
What happens to the effective duration of a callable bond when interest rates are low?
Why does a callable bond exhibit negative convexity in certain yield ranges?
Which of the following statements about putable bonds is accurate regarding convexity?
An embedded put option reduces the effective duration of a bond especially when:
For mortgage-backed securities (MBSs), which duration measure is most relevant?
In the formula for effective duration, what is in the denominator that differs from modified duration?
A callable bond has a current price (V0) of 1010.60. If the government par curve is lowered by 25 bps, the new price (V-) is 1028.91. If raised by 25 bps, the new price (V+) is 990.50. What is the effective duration?
Using the same bond data (V0=1010.60, V-=1028.91, V+=990.50, Shift=25bps), what is the effective convexity?
Under what circumstance might modified duration and effective duration be identical for an option-free bond?
The percentage change in bond price using effective duration and convexity is calculated as:
If a Callable bond has an effective duration of 6 and effective convexity of -300, what is the estimated percentage price change for a 30 bps increase in the benchmark yield?
For the same bond (EffDur = 6, EffConv = -300), what is the price change for a 50 bps increase?
Effective Duration and Modified Duration assume what kind of shift in the yield curve?
Which risk measure provides insight into a bond's sensitivity to non-parallel benchmark yield curve changes?
Key rate duration is also referred to as:
The sum of all key rate durations for a bond is equal to:
Key rate durations help identify which specific type of risk?
How are key rate durations calculated?
A bond has a KRD of 4.2 for the 10-year tenor. If the 10-year yield increases by 120 bps, what is the expected price change due to this specific movement?
Based on the provided portfolio strategy example, if 10-year and 20-year rates are expected to rise, what should a fund manager do?
Approaches to estimate duration using mathematical formulas are referred to as:
What assumption does analytical duration implicitly make regarding government bond yields and spreads?
Empirical duration determines the price-yield relationship using:
For a government bond with little credit risk, how do analytical and empirical durations typically compare?
For corporate bonds during a crisis, what is the typical relationship between government bond yields and credit spreads?
How does the negative correlation between credit spreads and benchmark yields affect the empirical duration of corporate bonds?
If a bond's price does not increase as much as expected when benchmark yields fall due to widening credit spreads, this implies:
Which duration measure is better for capturing the interplay between interest rate risk and credit risk in corporate bonds?
Effective Convexity is best described as:
What is the primary reason effective duration is used for bonds with embedded options?
If a callable bond has a negative effective convexity, this means:
Which duration measure would be most appropriate for a portfolio containing a mix of Treasury bonds, callable corporate bonds, and mortgage-backed securities?
A downward sloping spot curve is often called:
When calculating effective duration, if the bond price at lower yield (V-) is 102 and at higher yield (V+) is 98, and V0 is 100, is the duration positive or negative?
In the calculation of effective convexity, the term 'V0' in the denominator is multiplied by:
Shaping risk refers to:
If a bond portfolio has a high sensitivity to the 30-year rate but zero sensitivity to short-term rates, and the curve steepens (long rates rise, short rates fall), the portfolio value will likely:
Why might an investor prefer a putable bond in a rising interest rate environment?
The measure of a bond's sensitivity to a change in the benchmark yield at a specific maturity is called:
In the context of empirical duration, if credit spreads widen when government yields fall, the correlation is:
Which bond type is most likely to exhibit a large difference between analytical and empirical duration during a market crisis?
If a bond has a Key Rate Duration of 0 for the 5-year maturity, what happens to its price if the 5-year par rate changes by 50 bps (holding other rates constant)?
Effective convexity is essentially a measure of: