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    Question

     Which of the following methods of redeeming the bonds before maturity is generally considered the most detrimental for bondholders?

    A Call provision Correct Answer Incorrect Answer
    B Put provision Correct Answer Incorrect Answer
    C Tender offer Correct Answer Incorrect Answer
    D Both a and c Correct Answer Incorrect Answer
    E None of the above Correct Answer Incorrect Answer

    Solution

    The call provision gives the issuer the right to purchase the bonds at a given price, which the issuer would not do unless that price was below the market price. This is detrimental for bondholders as they will get call price as a redemption price and will face reinvestment risk as they will have to invest their proceedings at a lower rate.

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