(This article explains the method of calculating the value of a coupon bond factors in the annual or semi-annual coupon payment and the par value of the bond.) Bond valuation is the process by which an investor estimates the theoretical fair value, or intrinsic worth, of a bond. Like any security or capital investment, a…
Definition of Optionality in Bonds Optionality in bonds refers to the option-like features embedded within certain bonds. These features, known as embedded options, provide either the bond issuer or the bondholder with specific rights, though not obligations, to take certain actions in the future. What Are Embedded Options in Bonds? Embedded options are integral components…
A bond is a debt instrument issued by a company or the government to raise capital by borrowing from investors. Bond investors are debt holders (lenders/creditors), while the bond issuer is obligated to pay bondholders interest (the coupon) at a predetermined rate and repay the principal on the maturity date. Like bank deposit receipts, bond…