Which type of bond allows the issuer to redeem at a specified premium prior to...

Acallable bondgives the issuer the right to redeem the bond before its maturity date at a specified price, which often includes acall premium. The call premium is the additional amount over the bond’s face value that the issuer pays to compensate the bondholder for the early redemption. Callable bonds are advantageous for issuers when interest rates drop, allowing them to refinance the debt at a lower cost.

Definitions of Other Bond Types:

Acronyms (A):Not a bond type. This option is irrelevant.

Extendible (C):These bonds allow the bondholder to extend the maturity date, not the issuer to redeem early.

Convertible (D):These bonds allow bondholders to convert them into a specified number of common shares of the issuing company.

Retractable (E):These allow the bondholder, not the issuer, to demand early redemption before the maturity date, usually at par.

Why Callable is Correct:

A callable bond explicitly provides the issuer with the right to redeem the bond early, typically at a premium.

This feature is included in the bond’s terms and conditions and is typically accompanied by specific call dates and premiums.

References:

Canadian Securities Course (CSC), Volume 1, Chapter 6: Fixed-Income Securities – Features and Types. Explanation of callable bonds and their associated premiums​.

Discussion on the advantages and risks of callable bonds for issuers and investors​.