Questions: Which bond gives the issuer the right to redeem them prematurely? A) Callable bonds B) Puttable bonds C) Convertible bonds D) Zero-coupon bonds

Which bond gives the issuer the right to redeem them prematurely? A) Callable bonds B) Puttable bonds C) Convertible bonds D) Zero-coupon bonds
Transcript text: Which bond gives the issuer the right to redeem them prematurely? A) Callable bonds B) Puttable bonds C) Convertible bonds D) Zero-coupon bonds
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Solution

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Answer

The answer is A) Callable bonds

Explanation
Option 1: Callable bonds

Callable bonds give the issuer the right to redeem the bonds before their maturity date. This feature allows the issuer to take advantage of favorable interest rate movements by refinancing the debt at a lower cost if interest rates decline.

Option 2: Puttable bonds

Puttable bonds give the bondholder the right to sell the bond back to the issuer before maturity, not the other way around. This provides the bondholder with some protection against interest rate risk.

Option 3: Convertible bonds

Convertible bonds can be converted into a predetermined number of the issuer's equity shares. This feature benefits the bondholder rather than the issuer.

Option 4: Zero-coupon bonds

Zero-coupon bonds do not pay periodic interest and are issued at a discount to their face value. They do not inherently include a feature that allows the issuer to redeem them prematurely.

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