Question

If there is a deferred call provision, whereby the corporation is prohibited from recalling the bonds, the bonds are said to be:

a) Callable
b) Non-callable
c) Convertible
d) Redeemable

Answer 1

Bonds with a deferred call provision, which restricts a corporation from repurchasing the bonds until a specified date or condition, are classified as non-callable. This type of provision ensures that investors have a guaranteed return over a certain period.

Step-by-step explanation:

If there is a deferred call provision that prohibits the corporation from recalling the bonds before a certain date or under specific conditions, then by definition, these bonds are non-callable. The option of a deferred call is often included to provide investors with a guarantee that their investment will not be called back, or redeemed, before a particular time, ensuring a predictable return over that period. After the deferred period has passed, however, the bonds may become callable if specified by the original bond terms.

Answer: b) Non-callable