Which statement correctly describes a callable bond?

Which statement correctly describes a callable bond?

• A. A bond feature allowing holder to convert to stock.
• B. A bond that cannot be redeemed early.
• C. A bond that pays no coupons.
• D. A bond feature allowing issuer to redeem before maturity at a call price.

Answer: (D)

Callable bonds include a call provision that gives the issuer the right to redeem the bond before its scheduled maturity, at a specified call price. This feature lets the issuer refinance the debt if interest rates fall, typically after a call protection period. It is different from bonds that cannot be redeemed early, bonds that pay no coupons, or bonds that allow conversion to stock. So the statement that describes a callable bond as having a feature allowing the issuer to redeem before maturity at a call price correctly captures how this type of bond works.

Callable bonds include a call provision that gives the issuer the right to redeem the bond before its scheduled maturity, at a specified call price. This feature lets the issuer refinance the debt if interest rates fall, typically after a call protection period. It is different from bonds that cannot be redeemed early, bonds that pay no coupons, or bonds that allow conversion to stock. So the statement that describes a callable bond as having a feature allowing the issuer to redeem before maturity at a call price correctly captures how this type of bond works.