Extendible bond

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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.

Contents

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

Price of extendible bond = Price of straight bond + Price of the option to extend

References

  1. ↑ extendable bond
  2. ↑ "Financial Times". www.ft.com.
  3. ↑ "Investment Alternatives". Archived from the original on 2011-07-06. Retrieved 2010-10-18.
  4. ↑ "Extendable bond — Invest Definition". Archived from the original on 2011-07-18. Retrieved 2010-10-18.
  5. ↑ "Extendable Bond Definition". Investopedia.
  6. ↑ "IMF Puttable and Extendible Bonds" (PDF).
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