SIE Exam Practice Question 655

Question: 655

During a recent recession, your client, Charles, purchased high- yield corporate bonds that now face minimal default risk. However, he's now concerned that the various corporations may decide to call their bonds. You tell Charles that corporations are likely to call their bonds when:

Correct Answer: B

Explanation:

If corporate bonds are selling at a significant premium, then newly issued bonds are selling with lower coupons. The corporations are likely to call their bonds and replace them with lower coupon bonds.

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