The Gizaw Corporation has a bond outstanding that matures in the year 2018. But the corporation can pay the bond back early at the corporation's option. What kind of feature is this option?

Question

Quizplus · Accepted Answer

The option for the corporation to pay back the bond early is known as a call feature. This allows the corporation to redeem the bond before the maturity date. A put feature would allow the bondholder to sell the bond back to the corporation before maturity, an equity conversion feature would allow the bondholder to convert the bond into equity, and an adjustable coupon rate feature would allow the coupon rate to be adjusted based on a specified benchmark. None of these options apply to the situation presented in the question.

The Gizaw Corporation Has a Bond Outstanding That Matures in the Year