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10. Mai
2012
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The buyer / subscriber has the right to sell the bonds at any time before the maturity & generally this option is exercised when interest rates in economy rises. The terms of put option has to be specified at the time of issuance only. If the bonds do not have a put option, the shareholder cannot do this and would, therefore, be stuck with the lower coupon rate will 2004. E.g., in 1994 a company issues a bond with a maturity of 10 years (redeemable 2004) which is puttable at any time after 3 years (i.e. after 1997). Suppose the bond has a coupon of 15% while in 2001, interest rates have gone up and a similar company is issuing new bonds at a coupon of 174%. The bond holder could then buy these fresh bonds and put his existing 15% bonds back to the issuer for redemption.
