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Suppose the manager has now added a new bond with embedded option. You find that the value of the new bond with embedded option is
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- Suppose the manager has now added a new bond with embedded option. You find that the value of the new bond with embedded option is $87. Using your price technique, you find that the value of a normal bond (i.e. option free) with similar characteristics is worth $90 and the value of the option is $3. The embedded option is most likely:
- Call option
- Put option
- Suppose the manager has now added a new bond with embedded option. You find that the value of the new bond with embedded option is $87. Using your price technique, you find that the value of a normal bond (i.e. option free) with similar characteristics is worth $90 and the value of the option is $3. The embedded option is most likely:
Please circle your answer.
Based on your answer, please indicate below by circling whom does the embedded option benefit and explain your answers.
- Issuer
- Investors
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