SIE practice questionmediumCallable and Putable Bonds
If interest rates fall, which bondholder is most likely to have their bond called before maturity?
- AHolder of a non-callable bond
- BHolder of a callable bond✓ Correct answer
- CHolder of a putable bond
- DHolder of a convertible bond
Explanation
Why B — Holder of a callable bond
Callable bonds allow issuers to redeem the bond before maturity, often when rates fall and they can reissue debt at lower rates. Non-callable bonds cannot be redeemed early by the issuer, putable bonds allow the investor to sell early, and convertibles focus on conversion rights.
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