Question

A callable bond:

A. Is generally call protected during the entire term of the bond issue,
B. generally will have a call protection period during the final three years prior to maturity.
C. may be structured to pay bondholders the current value of the bond on the date of call.
D. is prohibited from having a sinking fund also.
E. Is frequently called at a price that is less than par value

Answer 1

C. may be structured to pay bondholders the current value of the bond on the date of call.

Step-by-step explanation:

A callable bond is also called a redeemable bond. It a debt instrument that the issuer may decide to call or redeem before the maturity date.

This is used by bond issuers to have a cheaper cost of borrowing funds.

For example when interests are low the issuer can buy back his bonds at a lower cost this reducing his debt burden.

So callable bonds are structured to pay bondholders the current value of the bond on the date of call or redemption.