Which of the following would describe a callable bond?
A)Borrower has the right to pay off the bonds prior to due date.
B)Borrower has the right to issue more bonds prior to due date of existing bonds.
C)Borrower has the right to call off the interest payments on the bonds.
D)Investor has the right to call off the interest payments on the bonds.

Question

Quizplus · Accepted Answer

A callable bond is a bond that can be redeemed by the borrower before its due date. This means that the borrower has the right to call (redeem) the bond before its maturity, usually by paying the investor a premium over the face value of the bond. This provision gives the issuer flexibility, as they can refinance their debt if market interest rates fall.

B, C, and D are not correct descriptions of a callable bond.

Which of the Following Would Describe a Callable Bond