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10-2B

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Essentials Of Investments
Found in: Page 328
Essentials Of Investments

Essentials Of Investments

Book edition 9th
Author(s) Zvi Bodie, Alex Kane, Alan Marcus, Alan J. Marcus
Pages 748 pages
ISBN 9780078034695

Short Answer

What is the option embedded in a callable bond? A puttable bond?

Callable bond gives the option to the issuer to retire the bond at the call date

Puttable bond gives the option to the bond-holder to retire the bond at the call date

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Step by Step Solution

Definition of callable and puttable bond

It is a type of bond that allows the issuer to redeem the bond at some time before it reaches its maturity. On the other hand the puttable bond allows the bondholder to force the issuer to repurchase the bond at some time before it reaches its maturity.

Explanation on embedded option

Callable bond gives the option to the issuer to retire the bond at the call date while the puttable bond gives this option to the bondholder.

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