The call feature makes a bond riskier because
A) the issuer may not have sufficient cash to redeem the bonds at the call date.
B) investors who ignore the call will not be paid the bond's principal.
C) after the bond is called, the investor will need to find a new place to invest, probably at a lower rate.
D) the issuer may decided not to call the bond and it will have to be held to maturity or sold in the secondary market.

Question

Quizplus · Accepted Answer

The call feature makes a bond riskier for investors because if the bond is called, they will have to reinvest their capital, potentially at a lower interest rate than the called bond was providing. This reinvestment risk is a key concern, especially in declining interest rate environments.

The Call Feature Makes a Bond Riskier Because