With ________ bonds a firm can choose to pay back the investor at a pre-specified date prior to the maturity date,usually at a pre-specified price above the face value,representing a premium to the bondholder
A)callable
B)convertible
C)variable rate
D)premium

Question

Quizplus · Accepted Answer

Callable bonds give the issuer the option to redeem the bond before maturity, usually at a premium to the face value. This allows the issuer to lower its debt cost if interest rates have fallen or to retire debt if it has excess cash. Therefore, callable bonds have an advantage over non-callable bonds for the issuer, but they carry more risk for the investor as the bonds can be called away before maturity, which would limit the investor's interest income.

With ________ Bonds a Firm Can Choose to Pay Back