straight bond

问题如下：

If the shape of the yield curve changes in the way predicted in the chief economist’s interest rate forecast and the price of Bond A does not change, the price of Bond C will most likely:

选项：

A.

decrease.

B.

increase.

C.

not change.

解释：

B is correct. As the yield curve moves from flat to upward sloping, the value of the put option embedded in Bond C will increase. Because the value of a putable bond is the value of the otherwise identical option-free bond plus the value of the put option, the value of Bond C will increase.

A is incorrect because the value of the embedded put option and therefore the value of this putable bond will increase when the yield curve moves from flat to upward sloping.

C is incorrect because the value of the embedded put option and therefore the value of this putable bond will increase when the yield curve moves from flat to upward sloping.