Which of the following is/are true about callable bonds?
I. Must always be called at par
II. Will normally be called after interest rates drop
III. Can be called by either the bondholder or the bond issuer
IV. Have higher required returns than non-callable bonds

Question

Quizplus · Accepted Answer

II and IV are true. Callable bonds are more likely to be called when interest rates drop, allowing the issuer to refinance at a lower rate. They typically offer higher yields than non-callable bonds to compensate for the call risk. Callable bonds are called at the discretion of the issuer, not the bondholder, and they can be called at a price above par, not necessarily at par.

Which of the Following Is/are True About Callable Bonds