Embedded options in liabilities

CFA Level III
#1

Can liabilities have embedded options? any example? Thanks.

#2

sure… a company paying on convertible bonds. The conversion to equity is an option which would affect the company’s cash flow liability.

#3

Thanks.

#4

A company that issues a callable or putable bond.

#5

insurance company products have embedded options. annuity products offer customer to pull out their money if interest rates are higher than guarantee rate/crediting rate that is guaranteed in their contract.