Which one of the following statements is correct concerning a callable bond that is currently selling below face value? Assume there is no risk of default. Also assume the issuer only calls bonds when they can be refinanced at a lower rate of interest.

Question

Quizplus · Accepted Answer

When a callable bond is selling below face value, the issuer may choose to call it if they can refinance at a lower rate of interest. In this scenario, the yield to maturity is less relevant to investors because they are likely to receive the call price before maturity. Therefore, the yield to call is more relevant in determining the potential return on the investment.

Which One of the Following Statements Is Correct Concerning a Callable