Which of these embedded options most likelybenefit
Which of these embedded options most likelybenefits the investor?
A. The floor in a floating-rate security
B. An accelerated sinking fund provision
C. The call option in a fixed-rate security
参考解答
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2024-11-14 21:15:56
Ans:A;
A is correct because the floor guarantees a minimum rate the investor will earn.
Embedded options that favor thebondholders/investors:
(1) conversion provisions;
(2) a floor that guarantees a minimum interest payment to the bondholder;
(3) a put option.
Embedded options that favor theissuer/borrower:
(1) the right to call the issue;
(2) an accelerated sinking fund provision;
(3) a prepayment option;
(4) a cap on the floating coupon rate that limits the amount of interest payable by the borrower/issuer.
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