a.2) Make-whole call provisions
Traditional call provision
Make-whole call provisions
Bond issuer can redeem the bond early
call price is fixed
call price is not fixed & includes a lump-sum payment
based on the PV of the future coupons the bondholder will
not receive if the bond is called early
call price < market value of the bond
call price > market value of the bond
put an upper limit on bond values when
interest rates fall
not put an upper limit on bond values when interest rates
fall
issuer is likely to call the bond when
interest rates fall
issuer is unlikely to call the bond except when corporate
circumstances, such as an acquisition or restructuring,
require it
More advantage to bond issuer
More disadvantage to bondholder
higher yield to compensate for
bondholder
More advantage to bond bondholder
More disadvantage to bond issuer (actually penalizes the
issuer for calling the bond)
lower yield to compensate for bond issuer
b) Puttable bonds
A put option gives the bondholder the right to sell the bond back to the issuing company at a
prespecified price, typically par.
Bondholders are likely to exercise such a put option when the fair value of the bond is less than the
put price (P < X); which could occur either because:
o interest rates have risen
o credit quality of the issuer has fallen.
Valuable to the bondholder sell at a higher price (offer a lower yield) compared to an otherwise
identical option-free bond. (
𝒀𝒊𝒆𝒍𝒅
𝒑𝒖𝒕𝒂𝒃𝒍𝒆
< 𝒀𝒊𝒆𝒍𝒅
𝒔𝒕𝒓𝒂𝒊𝒈𝒉𝒕
)
Mai Nguyen
Dawn of Finance
12
Value:
𝑽
𝒑𝒖𝒕𝒂𝒃𝒍𝒆 𝒃𝒐𝒏𝒅
> 𝑽
𝒔𝒕𝒓𝒂𝒊𝒈𝒉𝒕 𝒃𝒐𝒏𝒅
Chia sẻ với bạn bè của bạn: |
