Question

Which of the following statements is correct?
A. All else the same, an investor will require less return to invest in a callable bond than one that is not callable.
B. All else the same, an investor will require more return to invest in a callable bond than one that is not callable.
C. The call feature does not impact the return that investors demand.
D. We would need to know the current level of interest rates to answer this question.

Answer 1

Answer:

B. All else the same, an investor will require more return to invest in a callable bond than one that is not callable.

Explanation:

A callable bond is a bond that is redeemable. Before this bond gets to when it is matured, it could be redeemed. Bonds of these nature can give better rates of interest or return or coupon rates based on the fact that they are callable.

the answer to this question therefore is that an investor is going to need more return to invest in this type of bond than one that is not callable.