Which of the following types of debt protect a bondholder against an increase in interest rates?
A) Floating rate debt.
B) Bonds that are redeemable ("putable")at par at the bondholders' option.
C) Bonds with call provisions.
D) All of the above.
E) Only answers a and b above.

Question

Quizplus · Accepted Answer

Floating rate debt and putable bonds provide protection for a bondholder against an increase in interest rates. When interest rates rise, the coupon payment on a floating rate debt increases, providing a higher yield to the bondholder. Putable bonds are redeemable at par at the bondholders' option, allowing them to sell the bond back to the issuer if interest rates rise and the bond's price falls. Bonds with call provisions allow the issuer to redeem the bond at a specific price, which can be disadvantageous for the bondholder if interest rates rise. Therefore, option C does not protect bondholders against an increase in interest rates.

Which of the Following Types of Debt Protect a Bondholder