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Bonds 202: Callable Bonds

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1.
A call provision outlines the date and amount at which a bond issuer can call bonds it has issued.
Choose wisely. There is only one correct answer.
True. A call provision specifies when and at what price a bond issuer can redeem its bonds.
2.
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.
3.
Under callability, an investor often must replace a bond earning a low rate of interest with another bond paying a higher rate of interest.
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False. An investor often must replace a bond earning a high rate of interest with another bond paying a lower rate of interest.
4.
Todd just bought a bond with a call date of eight years in the future. His bond therefore offers _______.
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Call protection. Many bond investors like to look for bonds that offer call protection.
5.
A call premium is the amount above par value that the investor receives when a bond is redeemed at maturity.
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False. A call premium is the amount above par value that the investor receives when a bond is redeemed before maturity.