Final answer:
A Callable Bond is one that can be redeemed by the issuer before its maturity date, giving the issuer flexibility to refinance if interest rates are favorable. The terms of redemption are outlined in the bond's call provision. The callable feature is different from bonds redeemable by the bondholder, such as puttable or convertible bonds.
Step-by-step explanation:
A Callable Bond, also known as a redeemable bond, is a type of bond that gives the issuer the right to pay off the bond before the scheduled maturity date. This feature allows issuers to take advantage of favorable interest rate environments to refinance debt. Specifically, a callable bond can be redeemed by the issuer prior to its maturity date, which is option 4) A bond that can be called by the issuer before its maturity date. This contrasts with bonds that can be redeemed by the bondholder (puttable bonds or convertible bonds), where the bondholder has the right but not the obligation to demand early repayment.
The term callable refers to the bond issuer's option to take back the bonds from the bondholders, and 'redeemable' often refers to the same action. Callable bonds typically come with a call provision that outlines the terms under which the issuer can redeem the bond, including the call price, which is often set above the bond's face value as a premium for the bondholder.