Chartered Financial Analyst Level 2

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Explanation:

When a company issues a callable bond, it has the right to call (buy back) the bond, so it is long a call option.
When a company issues a putable bond, the investor has the right to put (sell) the bond back to the company, so the company is short a put option.

However, the question asks about the company's position when it has issued BOTH types of bonds:

Therefore, the company is long the call option and short the put option, which corresponds to option A.

Explanation:

When a company issues a callable bond, it has the right to call (buy back) the bond, so it is long a call option.
When a company issues a putable bond, the investor has the right to put (sell) the bond back to the company, so the company is short a put option.

However, the question asks about the company's position when it has issued BOTH types of bonds:

Therefore, the company is long the call option and short the put option, which corresponds to option A.

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long the put option and short the call option.

42.9%

short the put option and short the call option.

14.3%

short the put option and long the call option.

42.9%