Question

Companies with good credit ratings use ___________________ bonds extensively.

(a)- debenture bonds.
(b)- callable bonds.
(c)- convertible bonds.
(d)- mortgage bonds.

Answer 1

Answer: Option B

Explanation: In simple words, callable bonds refers to the bonds which the issuing company can redeem from the investor before its issuing date. Generally in such cases, the issuer pays the investor a higher coupon rate for redeeming.

In callable bonds it is right of the issuer to redeem and obligation for the investor to give back the bond.

Thus, the investor in such bonds bears a high risk of reinvestment hence only those companies which have high credit rating can attract investors to purchase their callable bonds.