Understanding Call Provisions in Bond Pricing

Medium Fixed Income Securities Bond Features

Consider an individual investor assessing different bond features before making an investment decision. One key bond feature is the bond’s call provision. This provision allows the issuer to repay the bond's principal before its maturity date under specified conditions. Understanding how call provisions impact bond pricing is essential.

Which of the following statements accurately describes the relationship between a call provision and bond pricing?

A bond with a call provision generally trades at a higher price than an identical bond without a call option.

A bond with a call provision generally trades at a lower price than an identical bond without a call option.

A bond with a call provision has the same pricing structure as an identical bond without a call option.

Hint

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