Question

Three bonds have identical times to maturity and coupon rates. One is puttable at 115, the...

Three bonds have identical times to maturity and coupon rates. One is puttable at 115, the other is callable at 120. Third bond is a plain bond.

Which of them should have highest price?

Which one has the highest yield to maturity?

Draw an (approximate) graph of all three bond prices versus interest rate.

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Answer #1

ANSWER DOWN BELOW. FEEL FREE TO ASK ANY DOUBTS. THUMBS UP PLEASE.

Callable bonds meaning:
It is long term fixed rate Bond where the issuer enjoys a call option that is right to buy back the bonds from the investors prior to maturity at a predetermined price known as call price. the call price is usually at a premium to face value.

That's why it has a higher YTM.


in case of Puttable bond, the bondholder enjoys a right to sell the bond. As he enjoys the right, such bonds have higher prices.

Puttable bond has the Higher Price compared to non-puttable bond and callable bond.

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