The rate of return on non-callable bonds is added into value of issuer option to calculate
Correct answer: B. return on callable bond
- A. return on assets
- B. return on callable bond
- C. return on non-callable bonds
- D. return on equity
Explanation
A callable bond's return is considered in relation to a comparable non-callable bond plus the effect of the issuer's call option. Because the issuer can redeem early, the option affects the callable bond's required return and value.
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