Inourexamplethecallpremiumis5

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: ame date. With serial bonds(that mature in installments over a period of time. In effect, a $100,000, 5­year serial bond would mature in a $20,000 annuity over a 5­year interval) , the maturity dates are staggered over time to avoid one very large repayment on a single date from the issuer. Various provisions in the bond contract, called embedded options, may affect paying all or part of the principal before maturity. 36 36 Characteristics of Bond Maturity: Common embedded options include call provisions, sinking fund provisions, conversion rights, and put provisions. The first two embedded options favor the issuer, while the latter two favor the bondholders. Call Provisions: A call provision gives the issuer the right to buy back/retire/repurchase or “call” all or a part of a bond issue before maturity (under specified terms). The bond indenture will stipulate when and how the bond can be called, and there are usually multiple call dates throughout the life of a callable bond. Many corporate and municipal securities have 10­year call provisions. For example, let's consider an XYZ bo...
View Full Document

This note was uploaded on 02/11/2014 for the course FIN 102 taught by Professor Han during the Fall '11 term at Kazakhstan Institute of Management, Economics and Strategic Research.

Ask a homework question - tutors are online