Just figure this out, hope to share this with anybody with a hard time grasping this… Callable bond = Option free bond – Call Option Interest rate increase, callable bond decrease less b/c option free bond decrease MINUS call option decrease Interest rate decrease, callable bond increase less b/c option free bond increase MINUS call option increase Putable bond = Option free bond + Put Option Interest rate increase, putable bond decrease less b/c option free bond decrease PLUS put option increase Interest rate decrease, putable bond increase less b/c option free bond increase PLUS put option decrease