In the last line of the attached image it’s written that price of a putable bond will rise but less than price of a straight bond because value of put will fall, but why?
Price of putable = Price of straight+ price of put option so even if the price of put ↓, the price of a putable bond shall be more than st. bond.
Please explain. Thank you.
Can you please share the full question?
See ,price of putable bond = Pnpb+price of put option.
When int. Fall price will rise at higher rate but price of put option will fall because put option is for downside and here the price has increased.
this was your query right?
Yaa, I was taking an example to explain you my doubt but by that example I myself understood the whole concept. Thank you for your help!