If a company's bonds are callable,

Question

Quizplus · Accepted Answer

If a company's bonds are callable, it means that the issuing company has the right to retire the bonds before the maturity date. This is usually done when prevailing interest rates are lower than the bonds' coupon rate, allowing the company to issue new debt at a lower cost. Therefore, option B is correct as the issuing company is likely to retire the bonds before maturity if the bonds are paying 9% interest while the market rate of interest is 6%. Option A is incorrect as the investor does not have the right to retire the bonds, only the issuing company does. Option C is incorrect as the bonds can remain outstanding until the maturity date, but it's at the discretion of the issuing company. Option D is incorrect as the redemption price is usually specified in the bond indenture before the bonds are issued.

If a Company's Bonds Are Callable