Simone Girard, CFA candidate, is studying yield volatility and the value of callable bonds. She has the following information: a callable bond with a call option value calculated at 1.25 (prices are quoted as a percent of par) and a straight bond similar in all other aspects priced at 98.5. Girard also wants to determine how the bond’s value will change if yield volatility increases. Which of the following choices is closest to what Girard calculates as the value for the callable bond and correctly describes the bond’s price behavior as yield volatility increases（）
A. 97.25, price increases.
B. 99.75, price decreases.
C. 97.25, price decreases.
参考答案：C
解析：
To calculate the callable bond value, use the following formula: Value of callable bond = Value of straight bond - Call option value =98.5-1.25=97.25. Remember: The call option is subtracted from the bond value because the call option is of value to the issuer, not the holder. As yield volatility increases, the value of the embedded option increases. The formula above shows that for a callable bond, an increase in the option value results in a decreased bond value.