Other things held constant,if a bond indenture contains a call provision,the yield to maturity that would exist without such a call provision will generally be ____ the YTM with it.
A) Higher than
B) Lower than
C) The same as
D) Either higher or lower,depending on the level of call premium,than
E) Unrelated to

Question

Quizplus · Accepted Answer

A call provision gives the issuer the right to call in the bond before maturity, which means early redemption. This represents a risk to bondholders because they may not receive the interest payments they were expecting, particularly if interest rates have fallen since the bond was issued. To compensate for the risk of early redemption, callable bonds typically offer a higher yield to maturity than non-callable bonds. Therefore, other things held constant, the yield to maturity that would exist without a call provision will generally be lower than the YTM with it.

Other Things Held Constant,if a Bond Indenture Contains a Call