SIE Exam Question 640: Answer and Explanation

Question: 640

All but which of the following are correct regarding a bond's call provision?

• A. It protects the issuer from declines in interest rates.
• B. It will cause the investor's required rate of return to be lower.
• C. It may be included in a bond agreement.
• D. It allows the debtor to pay off the debt after a specific period of time at a predetermined price.

Correct Answer: B

Explanation:

A bond's call provision may be included in a bond agreement, and it allows the debtor to pay off the debt after a specific period of time at a predetermined price. It protects the issuer from declines in interest rates. If a bond is callable it will cause an investor's required rate of return to be higher.