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Which of the following provisions of a bond allows an issuer to repay the bond prior to maturity?

a. Call
b. Exchange
c. Conversion
d. Convertible

User Inigo EC
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1 Answer

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Final answer:

A bond's call option allows the issuer to repay the bond before its maturity date, typically when interest rates decline, allowing debt refinancing at a lower cost.

Step-by-step explanation:

Among the provisions of a bond, the one that allows an issuer to repay the bond prior to the maturity date is known as a call option. This provision gives the issuer the right to redeem the bond before it reaches its scheduled maturity, often at a premium to the bond's face value.

The call option is typically exercised when interest rates decline, allowing the issuer to refinance the debt at a lower cost. Unlike exchanging, converting, or a convertible bond - which relates to changing the form of the investment or adding equity components - the call option is specifically about early repayment of the principal.

User Kevin Gorski
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