A callable bond will typically have a(n)________ yield than an otherwise identical bond without a call feature because ________.

Question

Quizplus · Accepted Answer

The option to call a bond provides the issuer with the ability to refinance the bond at a lower cost if interest rates decline, which is valuable to the issuer. Therefore, callable bonds will have a higher yield than otherwise identical non-callable bonds to compensate investors for this risk of early redemption.

A Callable Bond Will Typically Have A(n)________ Yield Than an Otherwise