What is a bond with an embedded option?

What will be an ideal response?

A bond with an embedded option is a bond that contains a provision in the indenture that gives either the bondholder and/or the issuer an option to take some action against the other party. For example, the borrower may be given the right to alter the amortization schedule for amortizing securities. An issue may also include a provision that allows the bondholder to change the maturity of a bond. An issue with a put provisionincluded in the indenture grants the bondholder the right to sell the issue back to the issuer at par value on designated dates.