Understanding Callable Bonds

Easy Fixed Income Securities Bond Features

Fixed income securities are known for their steady income and predictability. One of the key features that differentiate bonds from other types of securities is their potential to be called before maturity. A callable bond gives the issuer the right to redeem the bond before the scheduled maturity date at a predetermined price. This feature can impact the bond's yield and risk profile significantly.

Which of the following statements best describes a callable bond?

It pays a higher interest rate because it is considered less risky.

It may be redeemed by the issuer before its maturity at a specified price.

It is designed to have a fixed interest payment for its entire life.

Hint

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