An embedded option is one where the security contains features that are option-like. Which of the following is not an example of a security with an embedded option?
A) Callable bond.
B) Convertible bond.
C) Mortgages in the US.
D) Preferred stock.

Question

Quizplus · Accepted Answer

Preferred stock typically does not contain embedded options like callable bonds, convertible bonds, or mortgages (which often have prepayment options). While preferred stock can have features that resemble options, such as convertibility, a standard preferred stock without such features does not inherently contain an embedded option.

An Embedded Option Is One Where the Security Contains Features