Can a bond be both callable and puttable? or is it either callable or puttable.
if yes, can i have an example of a bond with both call and put option.
Yes, a bond can be puttable and callable.
For example, you could have a:
- $1,000 par
- 6% coupon
- semi-annual pay
- 10-year maturity bond
- callable after 5 years at 104
- callable after 7 years at 102
- callable after 9 years at par
- putable after 4 years at 95
- putable after 6 years at 97
- putable after 8 years at par
I don’t know any real-world bonds that are both callable and putable, but there are probably some, somewhere.
The issuer will pay for call option, either py paying a higher coupon (than for an option-free bond) or by issuing the bond at a lower price (than for an option-free bond. The buyer (bondholder) will pay for the put option, either by accepting a lower coupon (than for an option-free bond) or by paying a higher price (than for an option-free bond). Thus, for a callable and putable bond, those two will offset each other to some extent.
Yes, the bonds can be both callable and puttable. Continuing with the example given by ‘s2000magician’, one can have callable/puttable in the same years. e.g. Callable after 5 years at 104 and puttable after 5 years at 95.