Also known as Embedded Options
Bonds can include embedded optionality
These embedded options can give the issuer or the bondholder the right to change the cash flows by taking an action in the future.
This gives the issuer the right to retire the bond before the maturity date (partially or fully).
These are called Callable Bonds
This gives the bond holder the right to sell the bond back to the issuer on pre-defined dates
These are called Puttable Bonds
This gives the bond holder the right to exchange the bond for equity shares.
These are called Convertible Bonds
This gives either the bond holder or the issuer the right to extend the maturity date and defer the repayment of the principal.
These are called Extendable Bonds
Caps and Floors
A floating rate note may have a maximum or minimum rate of interest that can be paid when the bond has a variable coupon.
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