Answer to Question #320864 in Finance for Andrick Angel

Question

Which bond will sale higher between a callable bond and a non callable bond given they have same coupon rate? 4marks

Answer 1

Callable bonds often pay a higher coupon rate (i.e. interest rate) than noncallable bonds.

These bonds, however, come with the risk that they might be called, forcing the investor to reinvest the money at a lower interest rate.

Various types of fixed income securities can be called, including corporate, municipal, CDs, and preferred stock.

Bond issuers will issue a notice of call to the bondholder and then return the principal.