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Bonds 202: Callable Bonds

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1.
Joanne is contemplating buying a callable bond. She will want to make a special point to check _______.
Choose wisely. There is only one correct answer.
The call date. Joanne can't be sure of receiving interest income after that date.
2.
A company may call a freely callable bond only after the call date.
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False. A company may call a freely callable bond at any time.
3.
A company that cannot call its bonds before maturity may be at a competitive disadvantage.
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True. A company that cannot refinance its debts at lower interest rates faces a disadvantage in the marketplace.
4.
A company may redeem its callable bonds _______.
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Before maturity. Callability is the ability of a bond issuer to redeem its bonds early.
5.
Under callability, an investor often must replace a bond earning a low rate of interest with another bond paying a higher rate of interest.
Choose wisely. There is only one correct answer.
False. An investor often must replace a bond earning a high rate of interest with another bond paying a lower rate of interest.