puttable bonds

puttable bonds - elsewhere Risks If the company has a...

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Extendable (Puttable) debt  Combination of straight bond and an embedded put option.  The holder of the bond has the right, but not the obligation, to demand early  payment of the principal. Usually exercisable on certain dates. Protects investors If int rates rise after buying the bond, the future value of payments would hold  less value. The investor would then sell the bonds and buy another bond 
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Unformatted text preview: elsewhere. Risks If the company has a severe liquidity crisis, it may not be able to pay when the investor wants to exercise the put option. The investors can only sell the bonds at specific dates, not any time they want to. Price Price of puttable bond = price of straight bond + price of put option....
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This note was uploaded on 01/16/2010 for the course FBE 421 at USC.

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