Maria is considering investing in a 5-year bond issued by ABC Corp with a put option. Which of the following statements accurately describes the benefit of this put feature to Maria?

Question: Maria is considering investing in a 5-year bond issued by ABC Corp with a put option. Which of the following statements accurately describes the benefit of this put feature to Maria?

Answer options: ✅ It allows Maria to sell the bond back to the issuer at a predetermined price if interest rates rise.

• It allows ABC Corp to buy back the bond at a predetermined price if interest rates fall.
• It guarantees Maria a higher coupon rate compared to a non-puttable bond.
• It provides Maria with the option to extend the bond's maturity if she chooses.

Correct answer: It allows Maria to sell the bond back to the issuer at a predetermined price if interest rates rise.

Explanation: A put option on a bond is beneficial for the investor (Maria) as it gives her the right to sell the bond back to the issuer at a specified price (usually par) before maturity, typically if interest rates rise, protecting her from price declines.