Extendible bond
From Wikipedia, the free encyclopedia
Extendible bond (or extendable bond[1] ) is a complex bond with the embedded option for a holder to extend its maturity date by a number of years.[2] [3] Such a bond may be considered as a portfolio of a straight, shorter-term bond and a call option to buy a longer-term bond. This relatively rare type of bond works to the advantage of investors during periods of declining interest rates.[4] Pricing of the extendible bond will be similar to that of a puttable bond.
Sometimes, the bond may be structured so as to give an option to extend to the issuer.[5] In this case, pricing will be similar to that of a callable bond.
Pricing
[edit ]Further information: Bond option § Embedded options
Price of extendible bond = Price of straight bond + Price of the option to extend
- Price of an extendible bond is always higher than the price of a straight bond because the embedded option adds value to an investor;[6]
- Yield on an extendible bond is lower than the yield on a straight bond.
References
[edit ]- ^ extendable bond
- ^ "Financial Times". www.ft.com.
- ^ "Investment Alternatives". Archived from the original on 2011年07月06日. Retrieved 2010年10月18日.
- ^ "Extendable bond — Invest Definition". Archived from the original on 2011年07月18日. Retrieved 2010年10月18日.
- ^ "Extendable Bond Definition". Investopedia.
- ^ "IMF Puttable and Extendible Bonds" (PDF).