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LOS 36.e: Explain how changes in the level and READING 36: VALUATION AND ANALYSIS: BONDS WITH EMBEDDED OPTIONS
shape of the yield curve affect the value of a callable
or putable bond.
MODULE 36.3: VALUING BONDS WITH EMBEDDED OPTIONS, PART 2
In a normal yield curve:
• value of call option falls
• value of a put option increases
As an upward-sloping yield curve
becomes flatter:
• call option value increases.
• put option value declines.
