A call feature in a bond allows the issuer the opportunity to repurchase bonds at a stated price prior to maturity. This option has a greater chance of being exercised (to the detriment of the bondholder) if market interest rates have fallen since the bond was issued.

Question

Quizplus · Accepted Answer

This is because if market interest rates have fallen, the issuer can save money by repurchasing the bonds and issuing new bonds at the lower market rate. This is disadvantageous to bondholders who may miss out on future interest payments.

A Call Feature in a Bond Allows the Issuer the Opportunity