Section 7-2 discusses additional aspects fo the bond contract that give investors and firms options and flexibility. These options can sometimes catch investors by surprise - as was the case last week when Dr. Eric Cardella's favorite high yield bond was called back unexpectedly leaving his portfolio with loss. It is important to read through all of the highlighted terms in this section about bond characterstics. I am going to focus especially on three 1. Callable Bonds 2. Convertible Bonds 3. Putable Bonds Match each description below to the bond it best describes - These are bonds that can be converted in shares of stock and are common in growth A. Convertiable Bonds firms where there is a high likelyhood of the stock increasing in value B. Putable Bonds - The option to convert is up to the investor- this gives investors additional rights and C. Callable Bond means that yields for these bonds are lower, all else equal This bond option is exercised when stock prices rise This bond feature allows investors the option to require the firm to pay in advance (the investor can "put" the bond back on the firm) The option to be paid early is up to the investor- this gives investors additional rights and means that yields for these bonds are lower, all else equal This option will be exercised when interest rates rise and invesotrs would rather seek better available bonds - In this bond option, firms can choose to pay their debt off early. This comes at an additional price, called the call price - The option to call the bonds back is up to the firm- this gives firms additional flexiblity and is extra risk for the investor, which means that yields for these bonds are higher, all else equal This option is exercised when interest rates are declining making debt refinancing more attractive