The MAJOR reason the issuers of bonds call provisions is to:

Prepare for the Canon Financial Institute CFIRS Exam with flashcards and multiple choice questions. Each question comes with hints and explanations for better understanding. Get ready to excel in your exam!

The primary reason issuers of bonds incorporate call provisions is to protect themselves from interest rate risk. When interest rates decline after a bond is issued, the issuer may be paying a higher coupon rate compared to the current market rates. To mitigate this financial burden, the issuer can call the bonds, meaning they can pay off the bondholders before the maturity date and reissue new bonds at a lower interest rate. This strategy allows the issuer to reduce their overall borrowing costs, enhancing their financial flexibility and improving their cash flow management.

In contrast, choices related to providing options for bondholders or ensuring fair distribution do not align with the issuer's primary financial motivations. While protecting bondholders from market risk might seem beneficial, it does not reflect the issuer's perspective, as their focus is primarily on managing their own financial risks and obligations.

Subscribe

Get the latest from Examzify

You can unsubscribe at any time. Read our privacy policy