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Put option bonds definition psychology
A bond that the holder may choose either to exchange for par value at some date or to extend for a given number of years. A debt security that a holder may require the issuer to redeem before maturity. This protects the holder from certain types of interest rate risk.Variable-rate demand notes come in two main forms. The first allows the holder to demand redemption on any of several days throughout the life of the bond, while the second only allows this on one particular day.
Variable ratA debt security that a holder may require the issuer to redeem before maturity. Variable rate demand notes are also known as variable rate demand obligations, option tender bonds, or put bonds. In Canada, the most common term is a retractable bond.Want to thank TFD for its existence. The repurchase price is set at the time of issue, and is usually par value. Of course, the special advantages of put bonds mean that some yield must be sacrificed.This type of bond is also known as a multimaturity bond, an option tender bond, a variable rate demand obligation (VRDO).
A:A put option on a bond is a provision that allows the holder of the bond the right to force the issuer to pay back the principal on the bond. A put option gives the bond holder the ability to receive the principal of the bond whenever they want before maturity for whatever reason. If the bond holder feels that the prospects of the company are weakening, which could lower its ability to pay off its debts, they can simply force the issuerer to repurchase their bond through the put provision.
It also could be a situation in which interest rates have risen since the bond was intially purchased, and the bond holder feels that they can get a better return now in other investmentsPuttable bond (put bond, putable or retractable bond) is a bond with an embedded put option. The holder of the puttable bond has the right, but not the obligation, to demand early repayment of the principal. Therefore, investors sell bonds back to the issuer and may lend proceeds elsewhere at a higher rate.
Bondholders are ready to pay for such protection by accepting a lower yield relative to that of a straight bond.Of course, if an issuer has a severe liquidity crisis, it may be incapable of paying for the bonds when the investors wish. The investors also cannot sell back the bond at any time, but atCALLABLE BOND DEFINITIONA put option bonds definition psychology bond, or redeemable bond, gives the bond issuer the right to purchase the bond back from the bond holder before the maturity date of the bond through an embedded call option.
Issuers will compensate the bond holder with an option premium to allow themselves the opportunity to purchase the bond back if they are paying the bond holds a higher coupon than the market bears.A callable bond can be redeemed at any time after the lockout period. Typically issuers will provide 30 days of put option bonds definition psychology before calling the bond away. Issuers will call the bonds back if they no longer need funding or free expert advisor for forex trading heiken they can re-issue the bonds at a more favorable rate.
A put bond is often times confused with a callable bond. While a callable bond is called at the discretion of the issuer, a put bond can be called by the investor. So, in essence the put bond maturity date is the real maturity date. A put bond investor will call the bond if the bond issuer runs into financial hardships or there is a period of rising interest rates.
Rising interest rates leads to a surge in calls because the bond investor can get a higher return on the interest than the bond.