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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 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.
3.
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.
4.
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.
5.
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.