A call provision allows bond issuers to retire bonds before maturity by:

Question

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A call provision allows bond issuers to retire bonds before maturity by paying premiums to bondholders. This is because a call provision gives the bond issuer the right to redeem the bond before the maturity date, but the bondholder is not required to sell the bond back. To make this option more attractive to the bondholder, the issuer typically pays a premium. This compensation for the bondholder can be a set amount or a formula based on the bond's current market value. The other options (discounting the face value, paying higher interest rates, penalizing bondholders) do not accurately describe the purpose of a call provision.

A Call Provision Allows Bond Issuers to Retire Bonds Before