Callable and puttable bonds

CFA Level III
#1

both lose value in low interest environment and gain value in high interest environment. Is this statement correct?

#2

wow… i dont think thats right

#3

Huh? Bonds gain value interest rates decline but callable bonds will rise less than puttable because of the call option. Reverse is true when IRs rise - both will lose value but the putable bond will fall less because if the value goes too low you can put it back to the company.

#4

Aimee, I agree with you. One more thing to add: puttable bond holders will face reinvestment risks once they recover principal, which lowers the value of puttable bond.

#5

dude, are you really a level III candidate?

#6

Char-lee stop bweing such a meanie dude Craneview please dont pay attention to Charlee and oh yah please make sure you stay for both the morning and evening session

#7

craneview Wrote: ------------------------------------------------------- > Aimee, I agree with you. > > One more thing to add: puttable bond holders will > face reinvestment risks once they recover > principal, which lowers the value of puttable > bond. That’s incorrect, put provisions lower renivestment risk. Put option belongs to the investor - you would exercise your put when int rts increase/bond value decreases and force the issuer to redeem at par. You could then reinvest in higher interest rate environment.

#8

green360: You are right. Putable: protect the buyer against rising interest rate => no reinvestment risk Callable: protect the issuer against falling interest rate => reinvestment risk

#9

pimpineasy Wrote: ------------------------------------------------------- > Char-lee stop bweing such a meanie dude > Craneview please dont pay attention to Charlee and > oh yah please make sure you stay for both the > morning and evening session +2

#10

Char-Lee Wrote: ------------------------------------------------------- > pimpineasy Wrote: > -------------------------------------------------- > ----- > > Char-lee stop bweing such a meanie dude > > Craneview please dont pay attention to Charlee > and > > oh yah please make sure you stay for both the > > morning and evening session > > > +2 Lol…last year I was offering people money to come back for the afternoon session.