Question

    A type of bond (debt security) that allows the issuer of the bond to retain the right of redeeming the bond at some point before the bond reaches its date of maturity, is called as-

    A Junk Bond Correct Answer Incorrect Answer
    B James Bond Correct Answer Incorrect Answer
    C Mature Bond Correct Answer Incorrect Answer
    D Callable Bond Correct Answer Incorrect Answer
    E Flexible Bond Correct Answer Incorrect Answer

    Solution

    A callable bond (Redeemable Bond) is a bond that can be redeemed by the issuer prior to its maturity. If interest rates have declined since the company first issued the bond, the company is likely to want to refinance this debt at a lower rate of interest. In this case, the company calls its current bonds and reissues them at a lower rate of interest. Buying a callable bond is like buying a simple bond and a call option of the same value.

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