Callable/Puttable Flashcards
callable benefits who
issuer
puttable benefits who
bondholder
when is a bond called?
when interest rates fall
why would a bond purchased?
if price falls below the put price bondholders can buy a lot to put them back to issuer at par
an investor who expects interest rates to drop will not invest in?
callable debt issues OR debt issues
when would a bond be put?
when interest rates rise
call protection
the # of years the investor has before they can call a bond
callable
bond can be rebought by issuer
puttable
allows investors to sell bond back to issuer
risks associated with bonds are
default and interest risks
bond that is most volatile
zero coupon
least volatile bond
variable rates
credit rating agengies
Moody , SP 500
lowercase + Upper
Moody
Uppercase
SP
factors affecting bond price volatility
maturities, coupon, prices, duration
longer maturity =
more risky
higher bond coupon =
risky
high duration =
volatile because it takes longer for investor to get their $ back
marketability risk
risk that security is difficult/wont sell
market risk
risk of interest rates rising making bond price fall
reinvestment risk
risks for a long term bond investor because interest rate will fall over the investment’s time horizon
purchase power risk
risk of inflation
liquidity risk
risk that security can only be sold by incurring large transaction costs
