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

Question

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The option to call a bond is valuable to the issuer because it allows the issuer to refinance the bond at a lower interest rate if market conditions change. This added flexibility for the issuer represents an additional risk for the bondholder, who may have their bond called away in favorable market conditions. Therefore, callable bonds typically offer a higher yield to compensate investors for this additional risk.

A Callable Bond Will Typically Have a ________ Yield Than