Qualified Financial Adviser (QFA) Investments Exam 2 Practice Test

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If a bond is said to be callable on 1 May 2024, this means:

A the bond issuer must repay the bond on that date.

B the bond issuer can opt to, but is not required to, repay the bond on that day.

A callable bond includes an embedded option for the issuer to redeem the bond early on a specified date. If a bond is said to be callable on 1 May 2024, the issuer has the option to repay the principal on that date, but is not required to do so. This gives the issuer flexibility to refinance if rates fall, while investors face reinvestment risk if the bond is called. It’s not a claim or right for investors to demand repayment, and it doesn’t relate to when the next coupon or income payment is due.

C an investor in the bond has the right to demand full repayment on that date, but is not obliged to.

D this is the first date on which an income payment will be made on the bond.