I can undestand why the bullet choice is right, but I can’t tell why the potable and callable is wrong. Can someone help me on this please? Thank you so much. Wish all candidates good luck the day after tomorrow!
Callabie: Negative convexity - so if rates drop you lose. That spread premium (OAS) doesn’t benefit the investor.
Putable: It’s right it gives protection and if something happens, I think you can still put the bond back to the issuer, so the statement is wrong
Just remember that Callable bond is not beneficial to the buyer as buyer essentially sold a call option to the seller. It gets less valuable when interest rate decrease as seller might call the bond.