Which bonds can be called back by the issuer at a future date?

Which bonds can be called back by the issuer at a future date?

• A. Callable bonds
• B. Non-callable bonds
• C. Serial bonds
• D. Revenue bonds

Answer: (A)

Calling back bonds means the issuer has the option to redeem the issue before its stated maturity. Only bonds that include a call provision—callable bonds—give the issuer this right. If interest rates fall, the issuer may call the bonds and refinance at a lower rate, which creates call risk for investors. Non-callable bonds do not have this provision and must be held to maturity unless the issuer defaults. Serial bonds retire portions of principal over time rather than all at once, so their structure is about the payment schedule, not a call option. Revenue bonds are secured by a specific revenue stream and relate to how the debt is secured rather than its callability. Therefore, bonds that can be called back by the issuer at a future date are callable bonds.

Calling back bonds means the issuer has the option to redeem the issue before its stated maturity. Only bonds that include a call provision—callable bonds—give the issuer this right. If interest rates fall, the issuer may call the bonds and refinance at a lower rate, which creates call risk for investors. Non-callable bonds do not have this provision and must be held to maturity unless the issuer defaults. Serial bonds retire portions of principal over time rather than all at once, so their structure is about the payment schedule, not a call option. Revenue bonds are secured by a specific revenue stream and relate to how the debt is secured rather than its callability. Therefore, bonds that can be called back by the issuer at a future date are callable bonds.