Final answer:
Corporate bonds can be redeemed before the maturity date by the issuing corporation through a process called bond redemption. This can be done through call option redemption or sinking fund redemption.
Step-by-step explanation:
Corporate bonds can be redeemed before the maturity date by the issuing corporation through a process called bond redemption. Bond redemption allows the issuer to repay the bondholders their principal amount before the maturity date. This can be done in several ways:
- Call Option Redemption: The issuing corporation can include a call option in the bond contract, giving them the right to redeem the bonds at a specified price before the maturity date.
- Sinking Fund Redemption: The corporation can establish a sinking fund, which sets aside money for bond redemption purposes. The corporation can use this fund to buy back bonds from bondholders before the maturity date.
These redemption options give the issuing corporation flexibility and allow them to manage their debt effectively based on market conditions and their financial needs.