A puttable bond gives the investor the right to require the issuer to redeem the bond under specified contractual conditions. The put price and eligible exercise dates are set out in the bond terms. Option C is correct.

The feature can protect the investor when market interest rates rise sharply or the issuer’s perceived credit quality deteriorates. Without the put, the investor might have to sell the bond in the secondary market at a substantial discount. Exercising the put allows the investor to receive the contractual redemption amount and reinvest elsewhere.

A callable bond gives the redemption right to the issuer rather than the investor. Issuers commonly call bonds when interest rates fall and replacement financing becomes cheaper. A convertible bond permits conversion into shares or another security under specified terms. A sinking-fund provision requires the issuer to retire part of the debt systematically but does not necessarily give each investor an individual redemption election.

Because the put feature benefits the holder and creates additional risk for the issuer, a puttable bond may offer a lower yield than an otherwise comparable straight bond. The investor must examine exercise dates, price, notice requirements and credit quality.

The CIRO Retail Securities syllabus expressly requires understanding of callable, puttable, convertible, extendable, floating-rate and sinking-fund instruments.

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