CFA CFA Level 1 Question of the Week – Fixed Income

Question of the Week – Fixed Income

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  • AdaptPrep
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    Dennis is looking to buy a 10-year bond from Widgets, Inc., and some of the issues on the market have embedded put options. To accurately calculate the value for those options, what will Dennis not need to include in his model?

    hairyfairy
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    I’m surprised by the even distribution of the answers of this question!

    googs1484
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    What’s the answer? 

    googs1484
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    Ok good I was nervous I was wrong for a minute lol

    AdaptPrep
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    The future interest rates and future credit rating will
    determine the value of the option. Higher future interest rates and lower
    future credit ratings will make the option more valuable. Widgets, Inc. has no
    say in whether the put option is exercised, and will therefore have no
    worthwhile impact on Dennis’s decision.

    I apologize for the lack of a QOTW on Monday. There will be one next week!

    hairyfairy
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    Keep em coming @PassedTense! πŸ™‚

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