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Bonds 202: Callable Bonds

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1.
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.
2.
Bond callability directly enables a company to _______.
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Refinance debt at a lower interest rate. The primary reason that companies issue callable bonds is to protect themselves in the event that interest rates drop.
3.
The yield-to-call is a bond's _______.
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Rate of return. The yield-to-call takes into account the purchase price, redemption price, interest payments, and call date.
4.
A call provision outlines the date and amount at which a bond issuer can call bonds it has issued.
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True. A call provision specifies when and at what price a bond issuer can redeem its bonds.
5.
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.