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 redeem or call the bonds prior to maturity at a specified call price. This makes the bond less attractive to investors because they could lose out on future interest payments if the bond is called. Therefore, to compensate for this added risk, the YTM with a call provision will generally be lower than the YTM without a call provision.

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