Value of option issued to call debt is subtracted from rate of return on callable bond to calculate rate of return on

A. contributed bonds

B. non-callable bonds

C. callable bonds

D. discounted bonds

Answer: Option B

Solution(By Examveda Team)

Value of option issued to call debt is subtracted from rate of return on callable bond to calculate rate of return on non-callable bonds. A noncallable security is a financial security that cannot be redeemed early by the issuer except with the payment of a penalty. The issuer of a noncallable bond subjects itself to interest rate risk because, at issuance, it locks in the interest rate it will pay until the security matures.