Extendible bond explained

Extendible bond (or extendable bond^[1]) is a complex bond with the embedded option for a holder to extend its maturity date by a number of years.^{[2] [3]} Such a bond may be considered as a portfolio of a straight, shorter-term bond and a call option to buy a longer-term bond. This relatively rare type of bond works to the advantage of investors during periods of declining interest rates.^[4] Pricing of the extendible bond will be similar to that of a puttable bond.

Sometimes, the bond may be structured so as to give an option to extend to the issuer.^[5] In this case, pricing will be similar to that of a callable bond.

Pricing

Price of extendible bond = Price of straight bond + Price of the option to extend

• Price of an extendible bond is always higher than the price of a straight bond because the embedded option adds value to an investor;^[6]
• Yield on an extendible bond is lower than the yield on a straight bond.

External links

• 10 Investment Alternatives
• Fundamentals of Asset-Backed Extendible Notes
• EXTENDABLE MUNICIPAL COMMERCIAL PAPER NOTE RESOLUTION

Notes and References

1. http://www.investorwords.com/7282/extendable_bond.html extendable bond
2. Web site: Financial Times. www.ft.com.
3. Web site: Investment Alternatives . 2010-10-18 . https://web.archive.org/web/20110706211129/http://classes.uleth.ca/200803/mgt3412a/ch02.ppt . 2011-07-06 . dead .
4. Web site: Extendable bond — Invest Definition. 2010-10-18. 2011-07-18. https://web.archive.org/web/20110718033821/http://invest.yourdictionary.com/extendable-bond. dead.
5. Web site: Extendable Bond Definition. Investopedia.
6. Web site: IMF Puttable and Extendible Bonds.