If the volatility of interest rates increases, the prices of a putable bond and a callable bond will most likely:
　　A. Putable bond: Increase
　　Callable bond: Decrease
　　B. Putable bond: Decrease
　　Callable bond: Increase
　　C. Putable bond: Increase
　　Callable bond: Increase
　　D. Putable bond: Decrease
　　Callable bond: Decrease
　　Answer:C
　　In general, an increase in interest rate volatility increases the values of both put options and call options. A more valuable put option increases the price of a putable bond. A more valuable call option decreases the price of a callable bond.