Products & RisksQuestion 17 of 125
A call feature on a corporate bond primarily benefits:
a.The issuer, who can redeem the bonds early, typically when interest rates fall
b.The bondholder, who is guaranteed a higher yield
c.The underwriter, who earns extra commission
d.The rating agency
Explanation
A call provision lets the issuer redeem bonds before maturity, usually at a small premium. Issuers exercise calls when rates have fallen so they can refinance at lower cost, which exposes bondholders to reinvestment risk. To compensate, callable bonds generally offer higher yields.
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