hard · Debt Capital Markets pricing-yields-curve
Which of the following statements best describes the relationship between the 'Option-Adjusted Duration' and the 'Modified Duration' of a callable bond when it is deep 'in the money' (yields are much lower than the coupon)?
- Option-adjusted duration is significantly lower than modified duration.
- They are identical until the bond enters its callable window.
- Modified duration is always exactly zero for any callable bond, by rule.
- Option-adjusted duration is meaningfully higher than the bond's modified duration.
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