Which bonds allow the issuer to redeem them before maturity? Callable bonds provide the issuer the right to redeem the bonds early, typically when interest rates decline, enabling refinancing at lower costs.

Practice question from NISM XV Mock Test 3 — bank. The correct answer is highlighted below with a full explanation.

Options

Callable bonds

Correct answer
B

Puttable bonds
C

Payment-in-Kind (PIK) bonds
D

Zero-coupon bonds

Why this is the answer

Callable bonds allow issuers to repay the principal before maturity, usually to refinance at a lower interest rate when market conditions are favorable.

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NISM XV Mock Test 3