Question

The provision that provides bondholders the right to sell the bond back to the issuer at a predetermined price prior to the bond's maturity date is referred to as:

a) Call option
b) Put option
c) Floating rate
d) Coupon rate

Answer 1

The provision in question is referred to as a put option, which is a feature of bonds allowing investors to sell the bond back to the issuer at a set price before maturity.

Step-by-step explanation:

The provision that allows bondholders the right to sell the bond back to the issuer at a predetermined price before the bond's maturity date is referred to as a put option. Bonds are essentially IOU notes that investors receive in exchange for capital, typically including a face value, a coupon rate (interest rate), and a maturity date. The put option is a feature that provides investors additional security, as it affords them the flexibility to sell the bond back to the issuer if the market environment becomes unfavorable, such as when interest rates rise. This characteristic of bonds can influence their attractiveness to investors and their present value.