All else equal, which of the following bonds would be expected to sell for the lowest price?

Question

Quizplus · Accepted Answer

A callable bond is one which the issuer has the right to call back before maturity, meaning that the bondholder will receive their principal amount earlier than expected. This results in greater uncertainty and risk for the bondholder, hence callable bonds are usually priced lower than non-callable bonds. A callable bond gives the issuer the option to buy back the bond before maturity, which is a disadvantage for the bondholder as they may lose out on future interest payments. Therefore, callable bonds typically sell for a lower price than non-callable bonds.

All Else Equal, Which of the Following Bonds Would Be