Call Options Are Also Frequently Attached to Bonds, Making Them

question 170

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:

Social Power

The ability of an individual or group to influence or control the actions, beliefs, or conduct of others in a social context.

Culture

The total of everything in our social environment that we learn through socialization, that is passed down from one generation to the next, and that continues to change throughout our lives.

Social Environment

The social environment refers to the immediate physical and social setting in which people live or in which something happens or develops. It includes the culture that the individual is educated or lives in, and the people and institutions with whom they interact.

Customs And Traditions

The collective habits, practices, ceremonies, and rituals that are handed down within a culture, reflecting the values, beliefs, and history of a community.