The difference between the price of callable and noncallable bonds is greatest when bond prices are...
The difference between the price of callable and noncallable bonds is greatest when bond prices are lowest.
True or False
Homework Answers
Callable bonds meaning:
It is long term fixed rate Bond where the issuer enjoys a call
option that is right to buy back the bonds from the investors prior
to maturity at a predetermined price known as call price. the call
price is usually at a premium to face value.
The issuer will obviously call the bonds (that is refund prior to maturity) if the interest rate falls, such that issuer can refund the old bonds and issue new bonds at a lower interest rate.
When interest rate falls, the bond are price at their highest price.
The difference between the price of callable and noncallable bonds is greatest when bond prices are HIGHEST because the bondholders have call risk.
Answer: False.
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