The call provision of callable bonds comes at the expense of bond holders, for it limits investors' capital gain potential.

Question

Quizplus · Accepted Answer

The call provision of callable bonds allows the issuer to redeem the bond before maturity, which limits the capital gain potential of bond holders. This means that if interest rates fall and the bond becomes more valuable, the issuer may choose to call it back and pay back the investor at par value, which would prevent the investor from realizing any further capital gains.

The Call Provision of Callable Bonds Comes at the Expense