Question-51: What is the optional acceleration in case of sinking fund provision for a bond?

Answer: There is an optional acceleration feature, using this option, the issuer is free to retire more than the amount of debt the sinking fund requires and to do it at the call price set for sinking-fund payments. Of course, the firm will exercise this option only if the price of the bond exceeds the sinking-fund price, and this happens when rates are relatively low.

Question-52: What do you mean by a put-provision for a bond?

Answer: A bond which has put provision then the investor has the right to sell the issue back to the issuer at par value on specified dates. In this case investor has advantage, as if interest rates rise after the issue date, which reduces the value of the bond, now investor can ask the issuer to redeem the bond at par(higher than the market value).

Question-53: What do you mean by poison puts?

Answer: Bonds with put provisions can have restriction on the amount that the bondholder may put back to the issuer/borrower on any one put date. Put options have been included in corporate bonds to have some unfriendly takeovers. Such put provisions called as “poison puts.”

Question-54: What is the difference between hard puts and soft puts?

Answer:  You can classify put options as below

• Hard puts: In this case bond must be redeemed by the issuer only for cash.
• Soft puts: In this case, the issuer has the option to redeem the bond for cash, common stock, another debt instrument, or a combination of the three.

Question-55: what is the Convertible Debt/bond?

Answer: A convertible bond is can be exchanged for specified amounts of common/equity stock in the issuing firm/corporations.  Also, please note that the conversion cannot be reversed. The most important terms are conversion ratio and conversion price.