Callable and Putable Bonds Add Options to an Ordinary Bond

question 44

Essay

Callable and putable bonds add options to an ordinary bond.These options may be exercised at the discretion of the bondholder in one type,or the bond issuer in the other.Describe callable and putable bonds.In your description,be sure to include which party has the option to exercise,and the impact of the option on the price of the bond.

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Definitions:

Leverage Ratio

A financial ratio indicating the level of debt incurred by a business entity against its assets or equity, showing the degree of leverage.

Market-To-Book Value

A ratio comparing a company's current market price to its book value, thereby indicating how much investors are willing to pay above or below the net asset value.

ROA

Return on Assets, a financial ratio that indicates how profitable a company is relative to its total assets.

Debt/Equity Ratio

A financial ratio indicating the relative proportion of shareholder's equity and debt used to finance a company's assets.