Question

Please select one type of bond and illustrate one of the important bond features with a real-life example.

Answer 1

One type of Bond I will select is bonds with callable feature and these bonds are issued with call option embedded in them which will allow the bond issuer to call back their Bond before maturity when they will feel like there is a lower rate of interest in the market and they can call their Bonds and they can reissue their bonds at a lower rate, so they will have a savings of cost. These bonds will be generally issued by the company at a higher bond yield because there is an advantage embedded with callable bonds to the company.

For Example- if a bond has been issued in 2015 at a par value of $1000, and it will be redeemable in 2030 but it is redeemed in 2020 at $1020 as the bond issuer company felt that the rate of interest in the market is lower.