Investment VehiclesPregunta 38 de 110
Which risk is most directly associated with owning a callable bond?
a.The bond can never be redeemed early
b.Reinvestment risk is eliminated
c.The issuer may redeem it early when rates fall, forcing reinvestment at lower yields
d.The coupon automatically increases when the bond is called
Explicación
A callable bond lets the issuer redeem it before maturity, and issuers tend to call bonds when interest rates fall so they can refinance at lower cost. This exposes the investor to reinvestment risk, having to reinvest proceeds at lower prevailing yields. Call features therefore favor the issuer.
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