Under normal conditions,which of the following would be most likely to increase the coupon rate required for a bond to be issued at par?
A) Adding additional restrictive covenants that limit management's actions.
B) Adding a call provision.
C) The rating agencies change the bond's rating from Baa to Aaa.
D) Making the bond a first mortgage bond rather than a debenture.
E) Adding a sinking fund.

Question

Quizplus · Accepted Answer

Adding a call provision to a bond makes it more risky for investors because the issuer has the option to repay the bond before its maturity if interest rates decline. To compensate for this increased risk, issuers typically have to offer a higher coupon rate for the bond to be issued at par.

Under Normal Conditions,which of the Following Would Be Most Likely