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Bonds 202: Callable Bonds

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1.
When a bond issuer redeems a bond before maturity, it may compensate the bondholder with a _______.
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Call premium. This is the amount the issuer pays above the bond's par value at early redemption.
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.
For companies, the primary advantage of bond callability is to _______.
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Refinance debts with a more favorable interest rate. Callability protects companies when interest rates fall.
5.
Joanne is contemplating buying a callable bond. She will want to make a special point to check _______.
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The call date. Joanne can't be sure of receiving interest income after that date.