单选题 For a decline in interest rates, the price of a callable bond, when compared to an otherwise identical option-free bond, will most likely rise by: A. less because the price of the embedded option rises. B. less because the price of the embedded option falls. C. more because the price of the embedded option rises.

【正确答案】 A

【答案解析】As interest rates decline, the price of the option-free bond rises. However, the price Of the embedded call option also rises. Consequently, the price of a callable bond rises by less than the price of an otherwise identical option-free bond.