Schweser Book 2 Exam 3 #51 talks about a bond containing a soft put. The answer contrasts a soft put with a hard put. I don’t remember seeing this (soft put, hard put) anywhere in the Schweser or CFAI material! Can anyone please guide me to where I can read up about this?
i remember this vaguely. soft put you can pay some other stuff in place of cash.
It’s in the Schweser stuff, nearby the convertible bonds. Soft puts can be paid off with cash or stock or subordinated debt from the company, I believe. There is a lot of WTF in the later Schweser practice exams, as I’m sure you’ve noticed. Don’t let it kill your confidence.
Thanks.
Hard put is one in which the convertible security must be redeemed by the issuer for cash. Soft put is where the issuer will select how the payment is to be made.
What’s confusing me here is that I thought a putable convertible bond is one where the INVESTOR can sell (put) the bond BACK to the ISSUER prior to maturity.
So if it’s a soft put, does the investor get to chose whether they want cash/subordinated notes/common stock, or does the issuer decide that?