Reading 43-practice problem 22

[carolinesherif]

[question removed by moderator]

why would putable option increase when the interest rates decrease, should not the putable bond be further out of the money and accordingly less investors prefer to purchase the putable bond and accordingly the value of the put option should be lower?

[S2000magician]

@carolinesherif

why would putable option increase when the interest rates decrease

It wouldn’t, which is why the answer says:

@carolinesherif

The put option of putable bonds, by contrast, increases in value when interest rates rise . . . .