Chartered Market Technician Practice Exam 2025 – Complete Prep Guide

Callable bonds are designed specifically to give the issuing company the right to repurchase the bonds before their maturity date. This feature allows the issuer to take advantage of declining interest rates, enabling them to refinance their debt at a lower cost. When interest rates decrease, the value of existing bonds with higher interest rates goes up, and issuers may find it beneficial to call these bonds to reissue new bonds at lower rates.

The other types of bonds listed do not provide this feature. Putable bonds allow bondholders to sell the bonds back to the issuer at specified times before maturity, providing them with some protection against rising interest rates. Convertible bonds give the holder the option to convert the bonds into a specified number of shares of the issuing company’s stock, allowing for potential equity participation. Zero-coupon bonds are issued at a discount and do not make periodic interest payments; they are redeemed at face value at maturity, with no early repurchase option available. Thus, callable bonds are unique in granting the issuer the right to repurchase before maturity.