Question: (a) If interest rates rise, will callable or noncallable bonds fall more in price? (b) Sometimes you encounter bonds that can be repaid after a

(a) If interest rates rise, will callable or noncallable bonds fall more in price?

(b) Sometimes you encounter bonds that can be repaid after a fixed interval at the option of either the issuer or the bondholder. If the exercise price of each option is the same and both the issuer and bondholder act rationally, what will happen when the options can be exercised? (Ignore refinements such as transactions or issue costs.)

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