Q255
Value of option issued to call debt is subtracted from rate of return on callable bond to calculate rate of return on
A.
contributed bonds
B.
non-callable bonds
AnswerC.
callable bonds
D.
discounted bonds
Answer: Option B
Solution
Answer: Option B
Solution:
Value of option issued to call debt is subtracted from rate of return on callable bond to calculate rate of return on non-callable bonds. A noncallable security is a financial security that cannot be redeemed early by the issuer except with the payment of a penalty. The issuer of a noncallable bond subjects itself to interest rate risk because, at issuance, it locks in the interest rate it will pay until the security matures.