Series 7 Exam Question 28: Answer and Explanation

Question: 28

With everything else being equal, callable bonds would have a ________ yield than/as a non-callable bond.

• A. higher
• B. lower
• C. equal
• D. more variable

Correct Answer: A

Explanation:

A. When a corporation issues callable bonds, it gives them the right to call (repurchase) the bonds from issuers at a price stated on the indenture. Since this is something that would not be advantageous to investors, the issuer has to sweeten the pot by offering a higher coupon rate than a non-callable bond.