A corporate bond has a $1000 face value, 3 years to maturity, and a 6% annual coupon. This bond is retractable (puttable) only at two times: at the end of year 1 for $975, and at the end of year 2 for $990. These bonds trade at a 2% yield spread to the stated term structure, and issue costs are minimal and can be ignored. Applying the PEH, when, if ever, would you expect the bondholders to put the bond back to the corporation?

Answer rating: 100% (QA)

To determine when bondholders would choose to exercise their put option and put the bond back to the ... View the full answer