Call Options Are Also Frequently Attached to Bonds, Making Them

question 255

Essay

Call options are also frequently attached to bonds, making them callable at the option of the issuer. Consider a firm that just issued two sets of bonds: One is callable, has an 8% coupon rate, 10 years to maturity, and can't be called in the first five years; the second is non-callable, has an 8% coupon rate, 10 years to maturity, and is identical to the first bond in every way except for the call option. Suppose the non-callable bonds are sold for $1,000 each. Will the callable bonds sell for more or less? Who "purchases" the option in this case and who "sells" it?

---

Definitions:

Indirect Strategy

An approach in communication where the main point or request is not directly expressed at the beginning, often used to soften the message.

Avoid Mentioning

To deliberately not talk about or reference something specific.

Unhappy Customer

A customer who is dissatisfied with a product or service, potentially leading to complaints or negative feedback.

Resolve Problems

Resolve problems involves identifying issues, analyzing them, and then implementing solutions to address those issues effectively.