A bond investor is more likely to exercise a put option in a bond contract if:
A)market interest rates increase.
B)market interest rates decrease.
C)the default risk of a bond decreases.
D)good news about the bond issuer financial position has been released.

Question

Quizplus · Accepted Answer

A bond investor is more likely to exercise a put option when market interest rates increase, as this allows them to sell the bond back to the issuer at a predetermined price and potentially reinvest at higher prevailing rates.

A Bond Investor Is More Likely to Exercise a Put