SIE practice questioneasyCall risk
A bondholder faces which risk if an issuer chooses to redeem the bonds before maturity, particularly in a declining interest rate environment?
- APrepayment risk
- BCall risk✓ Correct answer
- CMarket risk
- DBusiness risk
Explanation
Why B — Call risk
Call risk is the chance that a bond will be redeemed before maturity by the issuer. Prepayment risk is specific to asset-backed securities, while market and business risk are not specific to bond redemptions.
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