What type of bond can be paid off by the issuer prior to its maturity date ?
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Answer: D. Callable bond
Explanation
A callable bond includes a specific provision allowing early debt retirement. Issuers can pay off the principal amount prior to the official maturity date. This feature gives borrowers flexibility to refinance when market interest rates decline. Callable provisions are stipulated in the initial bond indenture agreement document. Issuers typically pay a small premium above par value when exercising the call. Investors face reinvestment risk if their high-yielding bonds are called early.
Corporations issue callable bonds to protect themselves against sustained interest rate drops. Municipalities frequently call bonds to lower debt servicing costs for taxpayers. Bond investors analyze call provisions carefully before purchasing fixed-income securities. Preferred bond is not a standard financial classification used in debt markets. Registered bond records the owner's name on the issuer's books to track ownership. Incorporators bond relates to initial formation guarantees rather than early repayment terms.
- Subject
- Engineering
- Category
- Civil Engineering
- Topic
- —
- Difficulty
- medium
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